Let’s Play UNO: Sector review 5/21/11

I was playing UNO with my kids this morning and noted that it is a lot like the market. First of all the game can go on forever with ebbs and flows in who is winning that can shift on a dime. But more interestingly from what I see in the SPDR Sector ETF’s this week is that it has one card, the Reverse Card, that changes the direction of the game. Once played the game continues with ebbs and flows as to who is winning or losing but in the opposite direction. There are signs that this card was played in the market this past week when looking at it from the perspective of the SPDR sector ETF’s. If so, who will lead?
x

Leaders Are Fading

Three defensive sectors have continued to lead the charge higher since March. They are Consumer Staples Select Sector SPDR,$XLP, Utilities Select Sector SPDR,$XLU and Health Care Select Sector SPDR,$XLV. Each is in a different phase of potentially breaking down. Using the XLV for comparison it is clear from the chart that there is a pullback occurring. The elevated

Health Care Select Sector SPDR,$XLV

Relative Strength Index (RSI) is falling and sloping sharply down. The Moving Average Convergence Divergence (MACD) indicator has crossed negative. And the last two red candles have been on increasing volume. The good news (or bad depending on where your money is) is that this is the worst of the threesome. The XLU is next and printed a series of smaller body candles ending with a long legged doji Friday with its RSI starting to trend lower and MACD moving towards a negative cross. The XLP also printed smaller body candles ending in a doji, with a RSI that looks to be rolling over, but the MACD is not yet confirming and the Volume is increasing still. This is the brightest of the three and should be watched for confirmation of a total market rollover.

The Core is Shifting

Four core sectors, as in those in the middle of the pack that have been steady, are also showing signs that they are forming a trend lower. These are the Materials Select Sector SPDR,$XLB, Industrials Select Sector SPDR,$XLI, Technology Select Sector SPDR,$XLK and Consumer Discretionary Select Sector SPDR,$XLY.

Consumer Discretionary Select Sector SPDR,$XLY

Using the chart of the XLY to illustrate, shows the RSI trending lower and the MACD negative. This is the same for all four sectors but with the RSI trend less pronounced in the XLK. They have each also put in a lower low and now a lower high, with the XLI and XLB, the worst of the bunch, each printing two of each. Another lower low out of this bunch would shift the focus to the short side for these sectors.

The New Leader?

There is one sector that has looked sick for a long time, when viewed with an upside market bias and that is the Financials Select Sector SPDR,$XLF. One thing you learn early in studying technical analysis is that there is an inherent bias to the upside when looking at a chart. So it can often be useful to invert the chart to more easily see a downtrend from the

Financials Select Sector SPDR,$XLF

reverse direction, like the XLF chart below. This shows a clear rising trend in XLF, about to break a rough triple top. The RSI (at the bottom) is trending higher and the MACD looking to grow. In Reverse world this sector looks to be the leader.

The Double Reverse

There is hope for the market though from the Energy Select Sector SPDR,$XLE. From the chart below there are clear trouble signals. XLE has put in two

Energy Select Sector SPDR,$XLE

lower lows and a lower high, which will become a second lower high if it cannot move higher early next week. The RSI is trending lower as well. But the bright spots are that the MACD is about to cross positive (true it was in the same position in late April) and the volume has been decreasing as it has moved lower. There is no neon buy signal but if it were to move over the 20 and 50 day SMA’s to new highs for the month then perhaps that would be like playing the second reversal card in UNO. But for the meantime it appears that the leaders are done and a wave down is coming. Or in the vernacular of last week’s sector review (link below), Ashton Kutcher’s latest 15 minutes of fame are already over, and keep an eye on Charlie Sheen.

Bitchin’ Rock Star from Mars Gets Punk’d, and Tiger Woods

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Dragonfly Caps Blog