SPDR Sector Technical Review

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The SPDR Sector Technical Review covers all 11 sectors and assesses the technical posture for each.  Where applicable, trade set ups are offered along with timely commentary  to keep you on the right side of the trade.

SPDR Sector Technical Review

Assessing the Damage

The impulsive drop on Thursday trigger a bunch of sell signals across the indexes. That said we have not yet seen a full fledged trend reversal yet and thus in my mind too early for gonzo, balls to the wall shorting. Be patient. Wait for and pick great trade locations against a well-defined support or resistance area. The gap down on Thursday left gaps above. Dont put it past these guys to flash higher to fill that gap, then roll over.  Be flexible and open in your thinking and positioning.

XLB – Materials

Price broke the uptrend line putting the chart on a daily sell signal. That said, price caught in no man’s land between resistance at the gap opening at $57 and support at the 200/ 50 ema. Traders urged to wait for price to make a move toward a level to shoot against.  Above $57 get long for a gap fill try. If price is rejected at $57 get short and look for $53 as T1; On any move below $53, get short and look for $50 as the first downside target. THe indicators are flashing an emerging trend change. An RSI move below 50 combined with a further drop in PPO will help to confirm the signal.

XLC – Communications

Similar set up as XLB. Broken trend line triggered a sell signal but price is in no man’s land.  Above $55.50, get long for a gap fill. On a rejection of the gap, get short and look for $53.50. If price heads lower off the open and breaks $53.50, get short for a 50ema test at $51.90. Below $51.90 favors a 200ema test at $50.50. Below 50.50 its over; stay short.

XLE – Energy

Above $40.84 get long for a potential gap fill. If price gets rejected at the gap, get short and look for $36 as a target.  If price breaks below the 50ema at $39, get short and look for $36.  Definitely be short on a break below $36. Look for $33 or lower.

XLF – Financials

The gap is at $24.50. If price powers over, get long for a gap fill but honestly a rally to $24.50 is probably a gift to get short with an eye on a move back to the trend line. Another option is to simply wait for a break of trend to get short looking for a move to $21.50. A move below $21.50 and things move downhill quickly.

XLI – Industrials

THe gap is at $70. On a move above, get long for a gap fill try. A rejection of the gap at $70 would be an ideal short entry with an eye toward a move to the trend line. Otherwise,  I dont like the position of the 50ema in proximity to the trend line and support at $65.  Good chance of getting chopped up. I’d prefer to wait until the TL breaks and $65 fails to get short. Below $65 there is a good chance price finds $59 again.  Watch $BA.  XLI’s largest component for clues

XLK – Technology

Tech plunged from an ATH to the 20ema at 98.19 in one fell swoop triggering a sell signal. Price held the 20ema and was re-tested Friday and again held.   To my eye, $98 is a great toggle level for traders to key off. . Above ok to be long with a tight stop below.  If price breaks below $98, get short with an eye on $94 for a 50ema test. If for some reason price breaks higher it would need to re-capture the trend to negate the bearish action.

XLP – Staples

Staples have been under performing as you’d expect in this offensively minded rally off the March lows. Price is currently sitting on the lows at $58.  A break below $58 favors a move to $57.25 ish where lateral support comes in. For this one, I’d just wait until $57 broke to play on the short side. Much cleaner shot in my opinion. Being a defensive group, if the market does roll over, you may see XLP outperform. That doesnt mean it goes up, maybe just down less. Think about this as you decide where to place your short exposure.

XLRE – Real Estate / REITs

I’ve never traded the XLRE, but to my eye, as long as price holds $34.25 the bulls should be ok. If however, price loses that level, i think price can find $31.50. Below $31.50 and longs need to be long gone. Price would be favored to go much lower.

XLU – Utilities

Price is sitting on the 50ema at $58.63. A break below targets $57 and then $55 on a breakdown. A rally that stalls at the gap would also be a place to locate a short. Any move into the gap could be bought with chance at a gap fill.  Again, this is a defensive sector. Any turbulence may cause traders to rush into defensives.

XLV – Healthcare

After being stoned at $104 for the third time, price quickly fell away and impulsively fell below the trend line triggering a sell signal. Price is pinched between the 50ema ay $99 and the 200ema at $95.50. I’ve drawn a couple of potential scenarios for price. If we see a move higher to test the 50ema near $99 might be a good place to anchor a short looking for a move to test the 200ema $4 lower. Otherwise a break of the 200ema is an objective location to initiate a short.  If price rallies to the extent that it recaptures the trendline, that would be a bullish event and a place to get long in or around 100.50.

XLY – Discretionary

With AMZN nearly 25% of this sector, this chart is largely tracking how well Amazon is doing. THat said, this sector is loaded with restaurants and retail that will struggle if the re-opening slows or a second wave emerges.  If you dont like the heavy weighting in AMZN, please take a look at the equal weigh retail EFT, $XRT for better balance.  OK, from the chart below. Price put in a possible double top at $132.50. Price gapped down and triggered a sell signal with a break of trend.  Alarm $124 for a breakdown. Below $124, get short and look for $119.50 as a first target at the 50ema. If that does not hold, the next targets would be the 200ema and then $115.  If price goes the other way, a move in the gap can be bought witth the potential of a gap fill. THe indicators are flashing an emerging bearish reversal.

Pulling it all together

In a top down approach, market direction, then sector direction largely dictate the performance of the stocks in that sector.  Having a good feel for the sectors where your stocks lie is really important. To my eye, we are at the beginning stages of a market reversal, but too soon to go gonzo short.  My strategy will be to take each sector one by one. The important offensive sectors are the ones to focus on if you are interested in putting on short exposure.  The most important factor is having a clear line to shoot against. A number of charts above have price trapped within a range. Be patient for a good entry where you can shoot against a well-defined line.

Hope the analysis helps.

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