Top Advisors Corner

David Keller: Scrutinizing Sectors

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As the S&P 500 teases the upper end of the 2530-2750 range, the S&P sector charts are providing some clarity on market leadership.

Even with all of the recent volatility, the S&P 500 has remained neatly between its 50-day and 200-day moving averages.  


With the S&P again testing its 50-day moving average, I looked at the sector charts to get a sense of leadership during the last few weeks.

Out of the 11 S&P sector ETFs, only three are clearly above their 50- and 200-day moving averages- Consumer Discretionary (XLY), Financials (XLF), and Technology (XLK).  These three sectors are in the strongest technical form and represent strength in the markets.

Two of the sectors are currently trading right at their 50-day moving averages- Health Care (XLV) and Industrials (XLI).  The Materials sector (XLB) is not far behind.  These three sectors are essentially market performers, testing their 50-day moving averages at the same time as the S&P 500.

It will be very interesting to see if these “mid-tier” sectors confirm a breakout above the moving average or find resistance and trade lower.  That could provide an interesting confirmation signal for the broad market index.

We then see Consumer Staples (XLP) and Energy (XLE) trading down to their 200-day moving averages from above.  These are market laggards but are testing key support here.  Breakdowns here would suggest further lows and relative underperformance.

Finally, we have Utilities (XLU), Telecoms (IYZ), and Real Estate (IYR), all in confirmed downtrends.  Until these ETFs turn higher in some meaningful fashion, the weight of the evidence is bearish.

I’ve often found a quick review of the sector charts can provide another layer of insight to an analysis of the equity indexes.  By keeping an eye on these ETFs, you will have a much better awareness of relative opportunities within the equity space.
 

David Keller, CMT 
President
Sierra Alpha Research LLC

David Keller, CMT is President of Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness.  He is a Past President of the Market Technicians Association and currently serves as a Subject Matter Expert for Behavioral Finance.  David was formerly a Managing Director of Research at Fidelity Investments in Boston as well as a technical analysis specialist for Bloomberg in New York.  You can follow his thinking at marketmisbehavior.com.

Disclaimer: This blog is for educational purposes only, and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. 

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