SPDR Sector Review/Preview September 25, 2010

Is There Any Gas Left in the Tank?

In reviewing the SPDR sectors this morning I noticed that they could be separated into 3 groups based upon their recent price performance and how they are correlating with the current broad market rally, Bullish, At Resistance, and Not Participating.  Each chart has some interesting technicals associated with it that I have detailed previously on chart.ly and in my twitter stream so I will not go into those details here.

Bullish
The first group contains the Materials, Consumer Staples, Health Care and Consumer Discretionary sectors.

Materials Select Sector SPDR, XLB

Consumer Staples Select Sector SPDR, XLP

Health Care Select Sector SPDR, XLV

Consumer Discretionary Select Sector SPDR, XLY

This group is clearly bullish, having already broken above recent highs and now running higher.

At Resistance
The next group is a little more interesting. It contains the Industrial and Technical sectors.

Industrials Select Sector SPDR, XLI

Technology Select Sector SPDR, XLK

This group also has exhibited some bullish characteristics, breaking above recent highs.  But both of these sectors are now also at key resistance areas.  The Industrial sector is butting up against the neckline of a four month bullish Inverse Head and Shoulders pattern, and the Technical sector is at a longer term support/resistance line that has been a stalling point in late 2006/early 2007 and January, April and May of this year just above 23.  The Tech’s have moved through their own Inverse Head and Shoulders pattern this week, as well and do have a higher target, above this resistance.  If both can get through their respective resistance levels theses sectors could help lead the market higher.  Watch them.

Not Participating

The final group contains the Energy, Financial and Utilities sectors.  I will discount the Utilities as that sector has been the market leader for some time.  It should rest for a healthy market to continue.   It is surprising though that the broad market has run as far as it has recently from 1050 to 1150 on the S&P 500 Index, without these sectors breaking out of their ranges.  The energy sector is certainly set up to break higher fundamentally given the weak dollar, and is starting to show signs in its chart that it may be breaking the recent range with a sideways consolidation the last two weeks.  The Financial sector is a different story.  There is no indication in this chart that the Financial’s will break out of their range anytime soon.  If this persists any further rally in the broad market will be limited.

Energy Select Sector SPDR, XLE

Financials Select Sector SPDR, XLF

Utilities Select Sector SPDR, XLU

So four sectors that will be of interest in the short term.  Watch the Tech and Industrial sectors for either a failure or break of resistance.  The moves of these  two will be like easing up or pushing slightly harder on the accelerator pedal, small changes.  The Energy and Financial sectors are more like the gas in the tank.  Right now the gas gauge is broken so the market cannot tell if it is running on empty or ready for a cross country drive. Fixing that gauge and providing some clarity and will determine the longer term fate of the market.

Trade’m well.

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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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