Consumer Discretionary’s Leading the All Star Rally – Sector Review July 10, 2011

• Posted by Greg Harmon
• on July 10th, 2011

The broad markets are moving higher and look to continue in the coming week, marked by the All-Star Game. But there are some cracks appearing in the foundation of the move higher. For the Equity Indexes the Relative Strength Index (RSI) is starting to roll over and Moving Average Convergence Divergence (MACD) indicator is waning. Shifting focus deeper to the Select Sector SPDR ETF’s gives further understanding of where the vulnerability lies. Several sectors are at or near major resistance levels, with only one making new highs and a couple of laggards. As the All Star Game approaches it brings forth an a analogy for the market. Players are voted onto the team by the fans and then the managers fill in some extra places. Some players have been winning fan support and then deciding not to play. Leading and then pulling back. But there are others ready to replace them. Which sectors are like the Derek Jeter’s and A-Rod’s of the game pulling back and which are like the Asdrubal Cabrera’s and Adrian Beltre’s. Lets take a look.

The Jose Bautista

One sector is acting like Jose Bautista, top vote getter from a lesser market in Toronto, but continuing to run hard. That sector is the Consumer Discretionary Select Sector SPDR, $XLY. It is not supposed to be leading the market higher but is doing so despite common wisdom. From the weekly chart below you can see that it made a new high last week after retesting the high from

Consumer Discretionary Select Sector SPDR, $XLY

2007. It also has a rising RSI and a MACD that is crossing higher, suggesting that there is more upside to come. A true leader not concerned about the others around it just out to keep being great.

The Jeter’s & A-Rod’s

Derek Jeter has just homered for his 3000th hit. A monumental achievement that only 28 players have attained. He will celebrate this pinnacle by watching the All-Star game in a bar with A-Rod on a double date. He is tired and when he announced he was sitting out the game his teammate was quick to join him. There are three sectors that have had a great thrust up toward new highs but then decided to rest as well. They are the Industrials Select Sector SPDR, $XLI, Utilities Select Sector SPDR, $XLU and Health Care Select Sector SPDR, $XLV. As seen in the weekly chart below of

Utilities Select Sector SPDR, $XLU

the $XLU, it ran toward resistance at previous highs and then pulled back last week. In doing so its RSI rolled over and the MACD went to flat. The volume has been decreasing as well. Is this just a rest to prepare for the next push forward, as Jeter states, or a true loss of energy like from aging players.

The Asdrubal’s & Adrian’s

Of course there are players creeping up on the aging Jeter and A-Rod. And like Asdrubal Cabrera and Adrian Beltre, voted onto the team and who will now get to start the game in their places, there are 3 sectors ready to replace those that are resting. These are the >Materials Select Sector SPDR, $XLB, Technology Select Sector SPDR, $XLK and Consumer Staples Select Sector SPDR, $XLP. Using the chart for $XLK to illustrate, the strong week pre 4th of July was followed up

Technology Select Sector SPDR, $XLK

with another move higher last week. They are coming up toward resistance of the highs from earlier this year, and $XLP near an all time high, with RSI’s that are rising and MACD’s that are moving towards a bullish cross up. The one item to watch in these sectors is the volume has been decreasing on the move higher. This could be nothing (as volume has been less important in the lat couple of years) or a sign of coming exhaustion. A blow through to new highs that is followed by the elder players having to pick up their game will tell.

The Russell Martin’s and Matt Wieter’s

The final group are those that like Russell Martin and Matt Wieter, need to prove that they deserve to be on the field. the best thing that can be said about both catchers is that they play good defense. Defense, for the All-Star game? On that basis Lou Marson should be the second catcher throwing out half of those trying to steal. this group contains the Energy Select Sector SPDR, $XLE and Financials Select Sector SPDR, $XLF. From the chart below of the $XLE you can see

Energy Select Sector SPDR, $XLE

that it has some work to do. Although it had a second positive week it is at resistance below the previous highs and needs to work through it before it can reach higher resistance. It has positive indications in its favor, like the catchers who have played well in previous years, with a rising but currently flat RSI and a MACD that is about to cross positive, but needs to show that it still has power.

Look for the Bautista’s to continue to lead in the coming weeks, and for the Asdrubal’s Adrain’s to try to join them. But it will take a refreshed Jeter’s or A-Rod’s and a renewed show of power from either the Martin’s or Weiter’s to keep this rally going in the coming weeks. Pick your players accordingly and go Tribe!

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