Stick With the Gumbo – Stock Market Sector Review

• Posted by Greg Harmon
• on September 26th, 2011

I was in New Orleans this weekend for a family wedding. When most people think of New Orleans they think of the partying of Mardi Gras, the wonderful food like Gumbo and char Grilled Oysters or over the last 6 years Hurricane Katrina, which still leaves scars. I see pictures and relationships in everything you I of course think of how these relate to the Select Sector SPDR ETF’s. There are four different pictures in the SPDR Sectors this week. Let me show you.

The Gumbo

Gumbo is one of my favorite things about New Orleans. You can make it a million different ways and it is not flashy but consistently a favorite. The Utilities Select Sector SPDR, $XLU, is like that. From the chart below you can see that it continues to march along slowly trending higher.

Utilities Select Sector SPDR, $XLU

The Relative Strength Index (RSI) is holding the mid line and the Moving Average Convergence Divergence (MACD) flirts with the zero line. The support trendline is also rising. There is no blow off top or parabolic run, just a steady slow rise protecting value. Comforting like Gumbo. Look for this to continue.

The Oysters

The Consumer Staples Select Sector SPDR, $XLP, is a bit more like those char-grilled oysters. They are great for a while and then you feel like you don’t need to have them as much. But you will come back to them again. Not a solid go to meal like Gumbo, but good. From the chart below you can see the long rise higher through March and then the steep fall in early August,

Consumer Staples Select Sector SPDR, $XLP

and the most recent bounce. It is in the settling mode now with the RSI vacillating between 40 and 60 and the MACD going back and forth over the zero line. Not racing for the top but with support lower at the triple bottom from February, March and now August, if it breaks the channel. keep it on the list.

Mardi Gras

Three sectors show the ups and downs, the excesses followed by the ensuing pain like it can be at Mardi Gras. Illustrated with the Technology Select Sector SPDR, $XLK, below, but also present in the Health Care Select Sector SPDR, $XLV and Consumer Discretionary Select Sector SPDR, $XLY, these sectors have had hard partying rallies followed by hangover like

Technology Select Sector SPDR, $XLK

pullbacks. Running from the top of the bear flag to the bottom, 10% lower in just a couple of days, only to reverse and do the same higher. The short term story is starting to improve with the RSI trending higher for these sectors but it is still up in the air as to whether the next drunken binge higher will hold or be followed by a hangover, as may be foreshadowed in the MACD cross lower.

Hurricane Katrina

The remaining sectors Materials Select Sector SPDR, $XLB, Energy Select Sector SPDR, $XLE, Financials Select Sector SPDR, $XLF and Industrials Select Sector SPDR, $XLI are a lot more like Hurricane Katrina. The storm was big and you new it would cause a lot of damage and it did. But after the initial damage there was still weakness and destruction that that not only may never be overcome but may be getting worse. From the chart of $XLE below you can see the initial damage of the fall into the bear flag from August into September. But then the damage

Energy Select Sector SPDR, $XLE

got bigger last week with the fall out of the flag. The RSI is looking to head lower after failing to break over 50 and then MACD crossed negative. The drop out of the flags may hold, but the Measured Moves (MM) would take the price much lower, towards 50 in the case of $XLE. The damage may not be done.

I had never been to New Orleans and I enjoyed my time. As I was planning this trip I asked a lot of people for the one thing that I should do here in between all of the Wedding festivities. The overwhelming response was to eat. I think that was good advice and I am sticking with the gumbo.

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