Materials SPDR Continues to Show Relative Weakness


While the S&P 500 and Dow moved to new highs last week, the Materials SPDR (XLB) fell short of its February highs and continues to underperform. Also note that the Technology SPDR (XLK) and Consumer Discretional SPDR moved to new 52-week highs last week. Along with the Finance SPDR (XLF), these three are the clear market leaders right now. The chart below shows XLB breaking below its mid February low and then surging back above the support break with a seven day rally. The pink trendlines define this seven day advance, which could be a rising flag or wedge. A move below 36.5 would reverse this short-term uptrend and signal a continuation of the early March decline.

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The indicator windows show the price relative (XLB:SPY) ratio and the StockCharts Technical Rank (SCTR) for XLB. Notice that the price relative peaked at the beginning of February and moved lower the last 6-7 weeks. Underperformance and relative weakness are confirmed by the SCTR, which also peaked at the beginning of February and moved below 50. The centerline (50) is the make-or-break level for relative performance. In general, a stock or sector shows relative strength when the SCTR is above 50 and relative weakness when below.  With the SCTR below 50 and falling, XLB shows continuing relative weakness. Look for a break back above 50 for XLB to start showing relative strength again.

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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