Sectors – some to hold, and some to fold

There are 9 SPDR ETF’s trading on US markets.  These ETF’s represent the most actively traded industry sectors. I thought I’d take a very high-level look at the trends and formation on all 9 of these ETF’s. This might afford a more informed approach to our buy/hold/sell decisions on these sectors, and the stocks contained within them. Next week I’ll take a look at the major Canadian sector ETF’s.

 

XLY: Consumer Discretionary sector

 

XLY is trading in a consolidation after becoming substantially overbought in 2017. That overbought condition was reached because XLY contains some of the “FANG” stocks – specifically AMZN and NFLX. These, along with market darlings like Home Depot (HD), McDonalds (MCD)  and  “the House of the Mouse” (DIS) have taken a beating of late.

The longer termed trend remains up – it looks to me like there is danger of new lows being put in on the chart but that has not yet occurred. Watch the 200 day SMA for support. I own this ETT in the ValueTrend Equity Platform – although I expect to sell it as its seasonal period of strength ends in May.

 

XLP: Consumer Staples sector

 

XLP broke its 200 day SMA early this year. The last low (on the weekly chart) was taken out. The only positive for this chart is that there has been some notable rotation into the sector during recent market selloffs. This, along with seasonal periods for the sector over the summer might suggest it is a rotational candidate in a bear market selloff – should one occur. Meanwhile, the chart is questionable. And yes, I own it despite all of this negativity. I’m betting on the potential for it seeing some market rotation this summer.

 

XLE: Energy sector

XLE looks like its heading back to the top of its trading range. That’s about the $75-$80 price point. I will not be surprised to see it get there by the spring- coinciding with the end of the seasonal period. Not surprisingly, Canadian energy has struggled much more than the US counterparts.

 

XLF: Financial sector

XLF looks like the broad market indices. That’s because the financial sector is quite intimately tied to the fortunes of the economy, and broad market health. So far, it’s still in an uptrend, and consolidating well above its 200 day SMA. Keep an eye on its price pattern to ensure it doesn’t break its last low – which it nearly did in March.

 

XLV: Healthcare

XLV is looking a little under the weather. It broke its trend, it broke the 200 day SMA, and that ugly bit on the right side of the chart looks a whole lot like a topping pattern. This is a sector that appears too sick to buy at this moment.

 

XLI: Industrials

Unlike many of the sector charts that appear to be on trend while consolidating in the near-term – this ETF is struggling to maintain its trend. The most recent lows have taken out the Feb/March lows on the chart, and the ETF is bouncing off of its 200 day SMA. I’d probably avoid this sector for now. If the 200 day SMA holds and the sector rebounds, it will be constructive – but that is to be seen.

 

XLB: Materials

The bad news for XLB holders is that the ETF took out its last low and broke its 200 day SMA. The good news for XLB holders is that – after doing that rather horrifying move – it popped right back up above its 200 day SMA and moved over its last low again! Nice roller coaster ride. Investors in this ETF may enjoy horror movies and extreme sports.  Note my comments on XLP above—this sector has done what XLP needs to do. So far – XLB looks OK. Keep an eye on it though!

 

XLK: Technology sector

This sector has been the hot sector since early 2016. Clearly, despite its recent pullback, it’s still hot. The recent low didn’t take out the last low, and its well on trend. In fact, the Feb/March pullback brought it in line with normal technical trend conditions. In other words, it ain’t overbought anymore!

 

XLU: Utilities.

Everyone hates XLU. A recent survey of investment managers noted that Portfolio Managers rank it last in their outlook for the various sectors. Meanwhile, the ETF is rising against the recent market volatility–appearing as the only major sector to rise to new highs YTD. Go figure.

 

Despite its move below the 200 day SMA, the chart shows a longer-termed uptrend – albeit punctuated by large swings from troughs to peaks. It looks to me like this sector is rising off of a trough in January (which is when the broad markets hit their highs…). It looks like it wants to repeat the longer termed uptrending pattern via a rally. Seasonal period for utilities starts in May. It could be a strong mover this summer if markets get clobbered. Keep this one in mind – despite the bearish rumblings of my kin.

 

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9 Comments

  • Clear, simple & timely snapshot. I really liked this Keith, thanks again!

    Reply
    • Dave–energy sector seasonal period ends early May. US financials end in mid april BUT..the US bank seasonals (sub sector of financials which include insurance and mtg lenders etc) end in early June.

      Keep in mind that seasonals are a tendency, based on statistical averages. Also, I tend to draw the line with a crayon for seasonals. So if US bank seasonals end in June on average, I’m inclined to start looking at a sell between May and July

      Reply
    • The US banks, which ZUB represents, end their best seasonal period on June 4th according to equityclock. as I noted, though, we are talking a tendency–so circle that date with a big circle. It could be May, or it could be as late as july. The technicals are the main thing to watch – I use the seasonals as a guide, not a rule.

      Reply
  • You are a good teacher, Keith. I always learn things from your blog.
    Thanks

    Reply

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