I thought I would take a different tact today and discuss the technical outlook for the market sectors.
After being range bound since May 17, the Consumer Discretionary stocks (ticker XLY) retested the May 4th swing point without enough volume (6.3 million vs. 10 million shares). The MACD has been rising but the stochastisc indicate the sector may be overbought. The XLY has been underperforming the market since peaking in late April.
The XLE appears to have caught a bid after bottoming in June, and follows the improvement in commodity energy prices (such as the West Texas Intermediate Oil shown above). The sector appears overbought on the stochastics but both the A/D and MACD are rising significantly, suggesting that momentum and investor interest are behind the group. Watch for a potential pullback in the near-term, as shares run into the late April/Early May resistance, and a consolidation at the moving averages.
Relative to the SPY, financials (ticker XLF) have been in a downtrend since March. The relative price is trading below both the 50-day and 200-day exponential moving averages, but looks like it may be trying to consolidate. That said, the volume has been weakening on the upside moves and the sector may be setting up for a downside move into the $12 to $13 dollar level.
Industrials (ticker XLI) have been in pronounced downtrend since the beginning of 2012. With weak ISM figures world-wide and a slowing economy/industrial production rates, this is unlikely to reverse in the near term. The XLI is testing April resistance levels and is overbought. That said, the MACD and RSI are both positive.
The XLB (materials)- like their industrial cousins- is in a pronounced relative downtrend, noting the price and the moving averages are all pointing down. The price chart of the XLB is similar to that of the XLI, but the RSI and MACD appear to weak relative to industrial companies. The price is running into resistance levels established earlier in the year.
Consumer staples stocks (ticker XLP) have been in a established uptrend for, at least, a year. Both the MACD and RSI are positive for the group while the relative price is upward sloping. That said, it is interesting that the relative price of the XLP has pierced the 50-day moving average. This is a similar setup as in the healthcare group. This may suggest sector rotation away from non-cyclical names (see also the XLU below). I am unsure if this implies that investors are betting on a resurgence in economic growth (as the relative price of industrials and materials are weak), but it is something to watch. (see also this and this)
One beneficiary of the apparent sector rotation appears to be technology names (ticker XLK). Although both the RSI and MACD are positive, the volume characteristics suggest there is not enough juice on the upside here to keep the sector moving higher. The group may consolidate into the trading range established in the May-to-July time frame. The relative price of the XLK looks positive.
I use the Vanguard World Telecom ETF as a proxy for the telecom sector, as there is no telecom sector spider. The telecoms look positive, but I would wait for a pullback before establishing full positions in the group. The relative price has been in an uptrend since April and is testing the 50-day moving average.
And finally the utility group (ticker XLU). As I stated above, the XLU appears to have lost some gas relative to market. I am also concerned about the volume off the high seen on August 2nd. This setup, along with a divergence in the price trend versus the RSI and MACD may suggest a correction in the sector. This is while the A/D is in a decline.
After being range bound since May 17, the Consumer Discretionary stocks (ticker XLY) retested the May 4th swing point without enough volume (6.3 million vs. 10 million shares). The MACD has been rising but the stochastisc indicate the sector may be overbought. The XLY has been underperforming the market since peaking in late April.
The XLE appears to have caught a bid after bottoming in June, and follows the improvement in commodity energy prices (such as the West Texas Intermediate Oil shown above). The sector appears overbought on the stochastics but both the A/D and MACD are rising significantly, suggesting that momentum and investor interest are behind the group. Watch for a potential pullback in the near-term, as shares run into the late April/Early May resistance, and a consolidation at the moving averages.
Relative to the SPY, financials (ticker XLF) have been in a downtrend since March. The relative price is trading below both the 50-day and 200-day exponential moving averages, but looks like it may be trying to consolidate. That said, the volume has been weakening on the upside moves and the sector may be setting up for a downside move into the $12 to $13 dollar level.
Healthcare stocks (ticker XLV) have been in an uptrend for about a year. I am concerned about the divergence of the price trend with the trend in the stochastics, MACD, and RSI. On a relative basis, the XLV has strongly outperformed the market since the end of March, but may test the 200-day moving average.
Industrials (ticker XLI) have been in pronounced downtrend since the beginning of 2012. With weak ISM figures world-wide and a slowing economy/industrial production rates, this is unlikely to reverse in the near term. The XLI is testing April resistance levels and is overbought. That said, the MACD and RSI are both positive.
I use the Vanguard World Telecom ETF as a proxy for the telecom sector, as there is no telecom sector spider. The telecoms look positive, but I would wait for a pullback before establishing full positions in the group. The relative price has been in an uptrend since April and is testing the 50-day moving average.
And finally the utility group (ticker XLU). As I stated above, the XLU appears to have lost some gas relative to market. I am also concerned about the volume off the high seen on August 2nd. This setup, along with a divergence in the price trend versus the RSI and MACD may suggest a correction in the sector. This is while the A/D is in a decline.
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