All Thunderbirds Are Not the Same – Sector Review

• Posted by Greg Harmon
• on September 6th, 2011

The Cleveland Air Show happens every Labor Day Weekend and draws crowds from 100’s of miles away. There are many attractions including aircraft on the ground you can walk through, bi- and tri-planes performing acrobats and the Army parachute team to name a few. But the star attraction alternates annually between the Air Force Thunderbirds and the Navy Blue Angels. This year is the Thunderbirds. Everyone wants to watch the Thunderbirds. And the kids invariably want to be the Thunderbirds pilots. Secretly many adults have that same fantasy. Flying wingtip to wingtip at top speed and doing acrobatics in a $20 million jet. But most adults will have to settle for something closer to the Thunderbirds television show from British television in the 1960’s. This show presented a family of pilots, the Tracy’s, led by Former Astronaut Jeff Tracy and their support Brains and Lady Penelope saving the world. It used puppets and the strings were often visible but I loved it as a kid. We can be in the game but at a much lower performance level. Okay, who am I kidding? This is not in the game, it is just pretending.

This brings me to thinking of the stock market as I look at the Select Sector SPDR Funds this week. Some are looking like Thunderbirds pilots, performing and unyielding to gravity, and others more like the Thunderbirds puppets falling limply when the puppet masters remove the support. So which sectors are defying gravity and which are falling to Earth? Lets take a look.

The Pilots

Three sectors, the Consumer Staples Select Sector SPDR, $XLP, Utilities Select Sector SPDR, $XLU and Health Care Select Sector SPDR, $XLV, fit this profile. The best, the $XLU shown below, was only 4 cents away, or less than 0.2%, from making a multi-year high before pulling back Friday. These sectors have rising Simple Moving Averages (SMA’s) with price above all of them for the $XLU, above the all but the 20 day SMA for the $XLP and over the 100 and 200 day SMA for the

Utilities Select Sector SPDR, $XLU

$XLV. Each has a rising Relative Strength Index (RSI) that never hit the technically oversold level at 30 and in the case of the $XLU barely dipped under 50. They all also have Moving Average Convergence Divergence (MACD) indicators that are improving. But there are distinctions as well. The $XLU may be ready to break a triple top higher. The $XLP, below, has broken above the previous low from June but is not yet challenging the April highs. The $XLV has the most work

Consumer Staples Select Sector SPDR, $XLP

left to do to look positive. All three could qualify as Thunderbirds pilots in this market with the $XLU being the lead, the $XLP the 2nd in command and the $XLV as a outer wing man.

The Puppets

The rest, the Materials Select Sector SPDR, $XLB, Energy Select Sector SPDR, $XLE, Financials Select Sector SPDR, $XLF, Industrials Select Sector SPDR, $XLI, Technology Select Sector SPDR, $XLK, and Consumer Discretionary Select Sector SPDR, $XLY are looking like puppets. Each sector has at least one SMA rolling lower and none are above their 50 day SMA with most clinging near the 100 day SMA. But there is distinction among the puppets as well. The $XLE, below, and $XLB are acting like father Jeff and Scott Tracy, the principal mission coordinator, the leaders of the family. They both ended positive for the week, although they remain in their bear flags. They also

Energy Select Sector SPDR, XLE

have MACD’s that are improving. But the move higher over the last two weeks has really just put the price back within the lower Bollinger band, not impressive performance. The next two the $XLK, and $XLY finished lower for the week and moved back within their lower Bollinger band. They are acting like the key mission pilots Virgil and Alan Tracy, but barely holding onto the 100 day SMA and solidly continuing their bear flags. Close behind but not in the same league is the $XLI, acting more like Brains than one of the Tracy’s. It has lost the support of the 100 day SMA, being the major distinction. Finally the $XLF, below, is acting most like “The Hood” who frequently caused accidents to lure the others to the scene. this sector is solidly in a bear flag, under all of the SMA which are sloping down and has a RSI that is rolling along the 30 line. The last thing that is keeping

Financials Select Sector SPDR, XLF

it from a retracement back to the 2009 lows is the attachment to the support of the 23.6% Fibonacci level at 12.50. That attachment is tenuous with the increasing bear flag.

In the coming week there is no need to pretend to be a pilot, you can sit in cash. But if you have to look for opportunities they are best found in the real leaders, not the puppets. The $XLU, $XLP and $XLV are also known as the defensive sectors. Kind of fitting isn’t it?

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