Sector ETF Technical Outlook

ETF Trends

Year to date, the top performing Select SPDR Funds have been Health Care (XLV, 18.7%, beta .68), Consumer Staples (XLP, 17.6%, beta .58), and Utilities (XLU, 17.3%, beta .48).

Clearly a defensive positioning has been required to outperform the market.

Last week’s action has not so subtly hinted at some kind of rotation out of the defensive sectors and into select cyclical ones.  In particular the breakout in the Technology Select SPDR Fund (XLK) was the most striking as it now seems that the relative underperformance dating back to Sep. 2012 has ended.  As a result, XLK looks to have transformed from loser to leader. [Cyclical Sector ETF Rotation?]

The Consumer Discretionary Select SPDR Fund (XLY) is also gaining momentum to its already strong technical backdrop.

However, the deep cyclical sectors (XLI, XLE, XLB) are in need of further improvement to indicate sustainable rallies. [Energy ETF Highest Since 2008]

The bottom line here though, is that even the underperforming sectors last week still exhibit healthy price charts which are a sign of a healthy stock market that is poised to go higher.

Technology Select Sector SPDR Fund (XLK) –  The breakout from the Sep. 2012 relative strength downtrend and the bullish positive outside month pattern in Apr. 2013 suggest that the steady underperformance is finally over.  As a result, the allocation has gone from -4% to +3% in order to take advantage in what looks to be a good tactical opportunity.  Look for the Technology sector to lead the stock market higher. [Technology ETF: Loser to Leader?]

Financial Select Sector SPDR Fund (XLF) –  There are two things that need to be closely monitored for this Select SPDR Fund:  there are two head and shoulders tops still forming, one on the price chart and the other relative to the S&P 500.  The first is suggesting that distribution forces are at work, while the latter points to a potential a sustainable rotation out of XLF.  In either case confirmation of a neckline violation is needed to take further action.

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