More of the Same…Or Is It – Sector Review

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

The bear flags continued in the Select Sector SPDR ETF’s this past week. What else is there to say? Not much really. Nothing has changed. I have attached last week’s review below so you can see my analysis, but let me just point out a few observations that override and differentiate the sectors from each other. The strongest sectors remain the defensive ones: Consumer Staples Select Sector SPDR, $XLP, Utilities Select Sector SPDR, $XLU, and Health Care Select Sector SPDR, $XLV. The weekly chart below for $XLU, the strongest of the bunch, is showing signs of a potential breakdown. The bear flag continues this week and the Simple Moving Averages (SMA)

Utilities Select Sector SPDR, $XLU

are still rising with price above all but the 20 week SMA. But the topping tails on the last 4 candles suggest it is getting weary and may be ready for a fall. This shows up in the last 2 weeks of the $XLP and $XLV charts as well. In fact all 9 sectors have the topping tails for the last two candlesticks. Also notice the volume pattern. As with textbook flags the volume was strong on the move down and has been decreasing to where it is almost back to the levels prior to the move lower. This is not a trigger for the bear flag to break but an indication that movement could happen shortly. This volume pattern is evident on all of the sector charts.

The charts of the Materials Select Sector SPDR, $XLB, Industrials Select Sector SPDR, $XLI and Technology Select Sector SPDR, $XLK have an additional downward bias with the 20 week SMA

Materials Select Sector SPDR, $XLB

moving to cross down bearishly through the 50 week SMA this coming week and a renewed push lower in the Relative Strength Index (RSI) as shown in the chart for $XLB above.

One final point that was not mentioned last week has to do with the Bollinger bands. The move downward took all of the sectors outside of their lower Bollinger bands. The strongest recovered quickly but the last laggards moved back inside them over the last 2 weeks. Notice how this occurred in the weakest chart, the $XLF below, but also that the Bollinger bands are still expanding, clearing the path for a further move.

Financials Select Sector SPDR, $XLF

This article started by pronouncing that nothing much had changed in the market. Well it seems that was half true. The bearish bias remains, but the signs are now pointing to the potential of renewed carnage soon.

Last Week’s Review: All Thunderbirds Are Not the Same – Sector Review

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