Ready, Steady, Go! – Sector Review

• Posted by Greg Harmon
• on October 16th, 2011

For the younger crowd this title may bring to mind the song by Paul Oakenfold used in the movie the Bourne Identity but for 1 in 100 of you it is the title of a 60’s British pop music show that featured appearances by the Beatles, The Who, The Animals, the Rolling Stones among many others. The predecessor to American Bandstand. Whichever your preference there is a sample below. But this is also an apt title to describe the breakdown between the Select Sector SPDR funds this week. There are sectors that are Ready, those that are Steady and those that are Go(ing). Let’s take a look.

Ready

Four sectors have moved back from the abyss and may be ready to get going. The Materials Select Sector SPDR, $XLB, Energy Select Sector SPDR, $XLE, Financials Select Sector SPDR, $XLF and Industrials Select Sector SPDR, $XLI all looked dead just two weeks ago breaking their bear flags and descending channels lower. But as illustrated by the $XLE below, they printed long bullish candles for the week, with the $XLE, $XLB and $XLI printing extremely bullish Marubozu.

Energy Select Sector SPDR, $XLE

The Relative Strength Index (RSI) is rising and near the mid line. Not through or to the bullish 60 level yet but moving up. The Moving Average Convergence Divergence (MACD) indicator is improving, but not yet at a positive cross. The weekly candles ended near but just below the resistance created from the move lower, at 67.50 in the case of the $XLE. Positive indicators with rising price action. Not strong yet but Ready.

Steady

The next group of sectors, the Consumer Staples Select Sector SPDR, $XLP, >Utilities Select Sector SPDR, $XLU, and Health Care Select Sector SPDR, $XLV, have been the market leaders and they have held Steady. From a view of the $XLP chart below this week’s candle was positive but not nearly as long as those from the first group, keeping it within the consolidation range. But

Consumer Staples Select Sector SPDR, $XLP

the price is above all Simple Moving Average’s (SMA) and all but the shortest are sloping up ($XLV is above all but the 20 week SMA). The RSI has held in bullish territory and is moving higher while the MACD is about to cross positive. These sectors continue to remain strong and if the market pushes another leg higher are likely to lag. But until that leg up is confirmed they remain strong sectors to store wealth. Steady.

Go!

The last group includes the Technology Select Sector SPDR, $XLK and Consumer Discretionary Select Sector SPDR, $XLY, and they are already going. From the chart of the $XLK below the Marubozu candle printed for the week broke it out of the previous bear flag and up towards the

Technology Select Sector SPDR, $XLK

previous highs. The RSI is rising and near 60 while the MACD is crossing positive. Price is above all SMA’s and through the middle of the Bollinger bands. In a continued upward moving market these sectors are a good place to be. If the broad market stalls and reverses they are also likely to give back their gains faster. Going. Maybe both ways.

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