Choosing a Stock Sector Should be Like Looking For a Date

• Posted by Greg Harmon
• on August 1st, 2011

For some guys it is easier than others. Size them up from across the room, check out their attributes, maybe do a quick brush past to say “hello” and determine if there is interest. And then go in for the kill. But for other guys it can turn into a gut wrenching process. All girls have some similar features and can be attractive in their own way. Choosing then becomes a process of moving from confidence to self doubt and back again. About to make a move and then she moves in a manner totally unforeseen before and they are back to square one. If you are one of these guys then I can help you choose which Select Sector SPDR’s to focus on this week. What? Did you think this was a dating blog?

Like women all of the sectors have some similar attributes this week. They all had a bad week moving lower and have Relative Strength Indexes (RSI) that are pointing lower and Moving Average Convergence Divergence (MACD) indicators that suggest more downside. But most showed some positives signs as well printing Hollow Red candles on Friday that show bullish intraday action and many with long shadows showing indecision and a potential reversal. But let’s face it, none of these charts inspire you to jump with both feet like if you were going to date Megan Fox. She is out of the picture. But thinking along those lines can help make it easier to decide which sectors you might want to date.

Scarlett Johansson

Two sectors fit this description. A hot actress who maybe has come off of her peak a bit but still young and very attractive. These are the Energy Select Sector SPDR, $XLE and the Utilities Select Sector SPDR, $XLU. Using the chart of the chart for $XLU below to illustrate,

Utilities Select Sector SPDR, $XLU

it put in a higher high just over a week ago and if it holds on the support of the sing rail from the ascending triangle (100 day Simple Moving Average for the $XLE) then it will also put in a higher low. This will continue the uptrend. A fall below that support and each still have two previous lows within the last 6 weeks as support lower and a couple of moving averages.

Jessica Alba

Close behind but a little less desirable, with recognition but not the same star power that was once there just recently, these sectors have lost some excitement as they move in a range. They are the Materials Select Sector SPDR, $XLB and the Technology Select Sector SPDR, $XLK. Using the $XLK to illustrate shows that it is approaching the middle of the range from the top side.

Technology Select Sector SPDR, $XLK

If it can hold on then it can potentially bounce higher toward the top of the range and perhaps a new break out. But a failure at the mid point can lead to continued downside. Both are at or beyond their bottom Bollinger band so there is hope for a rise despite all the negative indicators.

Michelle Pfieffer

These two sectors, the Consumer Staples Select Sector SPDR, $XLP and Consumer Discretionary Select Sector SPDR, $XLY have had strong moves and then a pullback followed by a comeback attempt that now looks to be fizzling. You can still see the quality and would not avoid them in a different market structure but they are tired and on the downside. Using the chart for the $XLP you can see that it has fallen out of a symmetrical triangle and is making a lower low,

Consumer Staples Select Sector SPDR, $XLP

after printing a lower high to start the fall. A fall below the next support at the June lows could be the beginning of a big downfall for them. There are certainly not the last sectors you would look in for stocks to date but not as attractive as the ones previously mentioned.

Goldie Hawn

This sector still has some allure but it is not what it used to be and is headed downhill. There may still be a role for it going forward but you do not look at it the same way now that it is falling. It is the Health Care Select Sector SPDR, $XLV. From the chart below you can

Health Care Select Sector SPDR, $XLV

see that it has fallen out of the symmetrical triangle like the $XLP above, but has made a new low and now has support much lower at the levels from March. Only look here as a last resort.

Your Grandmother

I am sure your Grandmother is a sweet women who cares for you deeply, but when asked to think of your Grandmother and Dating at the same time, the proper context comes to mind. That is just sick, gross, stay away. These sectors, the Financials Select Sector SPDR, $XLF and the Industrials Select Sector SPDR, $XLI, should be treated this way. The $XLF may find support at 14.50 again but has been in a descending triangle most of this year and testing teh bottom more frequently now. Should it break below 14.50 then it will be identical to the $XLI chart below

Industrials Select Sector SPDR, $XLI

looking for support lower at at eight month lows from November 2010. Enough said about these sectors.

So you can see that viewed in the proper context sector selection can be quite easy. If Megan Fox is not around always look for Scarlett Johansson before turning around to check out Jessica Alba. If neither of them work out then you can try Michelle Pfeiffer or even Goldie Hawn, but never, ever try to date your Grandmother.

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