No Market for Old Fat, Droopy, Wrinkled Butts – Sector Review

• Posted by Greg Harmon
• on June 12th, 2011

Shortly after the close on Friday I posted a mystery chart showing why without a whole lot of bells and whistles it is easy to see that the trend is lower (link below). That chart was the weekly timeframe S&P 500 SPDR’s (ticker: $SPY). Identifying that trend is the most important part of my process and it is fat old man, droopy, wrinkled, butt, ugly going down. Because of that I do not intend to touch anything on the long side except for a day trade, even if I were to use your money! With that said there is some distinction to the butt ugliness among the Select Sector SPDR ETF’s.

Starting to Droop

The Financials Select Sector SPDR,$XLF, is in position to be best of a bad lot. From the chart below it has moved the furthest below the 200 day Simple Moving Average (SMA) and may be establishing a base, printing a long legged doji Friday, a sign of

Financials Select Sector SPDR,$XLF

indecision or potential reversal on large volume. It also has a Relative Strength Index (RSI) that has bounced off of a technically oversold condition and a Moving Average Convergence Divergence (MACD) indicator that is improving. If I had it pick one sector to outperform next week, preventing a droop, this is it and I have not said that for a long time.

Wrinkled but Not Drooping

Three sectors are on the edge. They have continued downtrends and are currently in bear flags. These are the Materials Select Sector SPDR,$XLBEnergy Select Sector SPDR,$XLE and Utilities Select Sector SPDR,$XLU. From the chart of the XLE below you can see the flag below

Energy Select Sector SPDR,$XLE

the 20 day SMA. Notice also that the RSI has decidedly moved into a lower range. After being pinned to the 70 line, it now has troubles getting over 50. The character of the MACD has changed as well from a flat line with both indicator and the signal line moving from overlapping and high to trending negative. Neither the RSI or MACD suggest a sharp move one way or the other but a kick from the total market could reinforce the bear flag or turn it into a basing that moves higher. With a market looking lower and lots of room for this group below to the 200 day SMA that is where the bias lies. They are wrinkled but might be able to prevent the drooping from happening.

Wrinkled and Drooping

Two sectors are looking a bit worse having broke their bear flags lower on Friday. They are the Consumer Staples Select Sector SPDR,$XLP and Health Care Select Sector SPDR,$XLV. From the XLV chart below

Health Care Select Sector SPDR,$XLV

you can see the strong move to a new low on Friday closing near the low on big volume. Also the RSI is moving lower and the MACD is kinking back lower. It is not as bad as it can be yet. If it were to bounce back higher you might interpret it as an expanding wedge basing pattern, but with all the indicators following the price lower it is in a trend down, with a lot to overcome being drooping and wrinkled.

Fat, Wrinkled and Drooping

This last group of 3 sectors looks to be beyond hope. They are the Industrials Select Sector SPDR,$XLI, Technology Select Sector SPDR,$XLK, and Consumer Discretionary Select Sector SPDR,$XLY. Using the chart of XLY to illustrate these three have

Consumer Discretionary Select Sector SPDR,$XLY

fallen out of descending channels and are just continuing lower. The RSI is on a trend line lower and the MACD is growing more negative. It looks to have a date with the 200 day SMA below and there are no indications that it will stop there. In fact the XLK has already passed through its 200 day SMA. This is the point of no return like when your butt is fat wrinkled and drooping, you do not know where to start to begin a turn around.

If you have to look for long ideas then for next week stick with the droopers or wrinkled sectors, but avoid those that are drooping and wrinkled and if they are also fat sell them big time. I apologize if I have offended any fat, droopy, wrinkled butt old men in writing this. Actually not really.

1 Simple Chart With 4 Reasons Why We Are Heading Lower

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

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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.

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