SPDR Sector Technical Review

Tickers discussed: SPDR Sectors XLC XLF XLK XLY XLV

The SPDR Sector Technical Review covers the top 5 sectors by market weighting 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

Taking a look at the top 5 sectors by market weighting. 

For each of the top 5 sectors I identify the key levels, triggers, and potential targets.  I am favoring continued downside but convictions are not super strong and positioning is light. THe bulls and dipsters have been relentless and each sell off since the March lows have been gobbled up quickly with little follow through. Time will tell if the recent dip will see added selling or simply have been a chance to buy at slightly lower prices.

Going forward, be patient. Wait for and pick great trade locations against a well-defined support or resistance area and set stops accordingly slightly above or below your entry. Be flexible and open in your thinking and positioning.  Be reactive to price, not some preconceived idea.  With the VIX at 35 volatility dictates lots of 2 way trading opportunities.

NOTE: Chart snapshots made pre-market

XLC – Communications

FUN FACT:   $FB and $GOOGL are over 40% of this ETF.  The chart sets up well to simply trade off the 20, 50, and 200ema’s with will act as natural support and resistance levels. On a break of the 20ema at 54.70. Longer term position traders can get short on a break of the 200ema at $51.  Bulls need to hold the 20ema and take out $56.50 for new relative highs.

XLF – Financials

The financials have been a poor relative performer and with bank tests being released later today it may be a catalyst for a big move. Simple analysis here. Get short on a break of $23 lateral and trend line support. Look for $21.50 and $20 as downside targets. Bulls need to hold it right here or it could go fast. First upside objective is to recapture the 50ema at 23.40.

XLK – Technology

In many respects, XLK is the key to the whole market. And for this sector, AAPL and MSFT hold the key representing over 40% of the index. A break of 101.80 is the first objective for bears. Even if they accomplish that the 20ema is just below. A break below 100.54 would likely give the bears a little juice for a run at $97 near the 50ema.  Lots of dipsters here. If i were going to try a short, I’d wait for the 20ema to break. If bulls can hold here, a break above 104.50 sends it higher.

XLV – Healthcare

XLV is set up for a 200ema test near $95 as it trades below the 50ema and a nice downtrend line short traders can use as handy reference point. Bears can stay short against the trend line. If price loses the 200ema / 95 I think price can find 90 relatively quickly. If the bulls can pop the downtrend line it would likely spark a rally. Resistance lies at 101.50 and lights out if they pop $103.50. Bears have the ball here as long as they keep price below trend. As the second largest ETF its an important one for the market.

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 focused on retail.  OK, from the chart below. Again, the key levels align with the common 20, 50 and 200emas. Nimble traders can trade those ranges. Big support at $117.50. Below that and the market will probably be in a confirmed downward trajectory and traders can get short for a more duration type trade against the 200ema. If bulls can hold above the 20ema, they have a chance at a run back to resistance at $131.50ish. A pop above that and should be good to go. That prior high would be a nice level to alarm to for a potential long. There would be a ton of support below on a break out.

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. These top 5 sectors largely dictate market direction. The most important factor, for me, is having a clear line to shoot against.  Be patient for a good entry where you can shoot against a well-defined line.

Hope the analysis helps.

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