Sector ETF Technical Outlook

ETF Trends

For the most part last week’s top performing sector ETFs like the Energy/Materials/Technology SPDR Select Sector Funds have been some of the weakest sector funds year to date.  As a result there was an associated bounce relative to the S&P 500.  However, these bounces still have the makings of a reflexive action and not a sustainable rotation into these sector ETFs.

What this means is that even though this may continue somewhat longer in the near-term, a return to the prevailing trend of underperformance is likely.  The flipside to this call, again relatively speaking, is that those sector ETFs that have underperformed of late, but whose dominant trend is favorable, are allowing for more attractive entry points. [What's Driving Low-Volatility ETFs]

At least for the foreseeable future, relative strength leadership sectors remain Health Care, Consumer Staples, Consumer Discretionary, Utilities, and Telecom.  As long as these charts trend higher, then this is evidence that money is just rotating within the stock market and not leaving it altogether. [Why Technology ETFs Could Recover]

Technology Select Sector SPDR Fund (XLK) –  Granted XLK had a solid week, but the overall technical picture has not changed.  In other words, the rally seems thus far to be reflexive.  Even from a relative strength point of view, the bounce is still just a contra trend rally to the predominant downtrend. Further work needs to be done in order to change this.  With that said the outside month pattern that is forming could either change this or reinforce the bears’ camp.

Financial Select Sector SPDR Fund (XLF) –  XLF still trades within its Oct. 2011 uptrend channel.  The top of the channel near 20 will now represent initial resistance.  Initial support is evident at the Apr. 2013 low ( 17.75 ).  The bottom of the channel near 16.50 should act as additional resistance as it also corresponds to the Sep. 2012 high and the bottom of the 1/2/13 upside gap. Relative to the S&P 500, a posible head and shoulders top looks to be forming.

Health Care Select Sector SPDR Fund (XLV) –  There has been some underperformance from XLV over the last two weeks, but this does not change the technical outlook.  In fact, the sideways trading gives this ETF a chance to alleviate what had become an extreme overbought condition.  The key will be to have patience and to look at pullbacks as an opportunity to get involved at discounted prices.  With that said, initial support remains 46.02 or the Apr. 2013 low. [ETF Chart of the Day: Healthcare]

Consumer Discretionary Select Sector SPDR Fund (XLY) – Another new high was reached last week on both a relative and an absolute basis.  So one needs to beg the question:  how high is high for XLY?  It appears that XLY is head for a test of the top of its 2009 uptrend channel near 56 .  A breakout allows for a move towards psychological supply at 60 . On the downside, initial support is fairly conservative at the Mar. 2013 breakout level near 51.50 .

Next page: More sector ETF analysis

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