Consumer Discretionary and Finance Sectors Fall in Sector Rankings


It has been a rough year for stocks and two key offensive sectors are leading the way lower. I like to group the sector SPDRs into three groups: offensive, defensive and other. The consumer discretionary, technology, finance and industrials sectors are offensive because they are key to market performance. The consumer discretionary sector is the most economically sensitive sector, the technology sector represents growth stocks, the finance sector reflects the health of the banking system and the industrials sector makes the capital goods required for capital spending. The utilities, consumer staples and healthcare sectors are defensive because they provide products we need regardless of economic circumstances. The energy and materials sectors fall into the "other" category.

The following CandleGlance charts show these nine sector SPDRs and their StockCharts Technical Rank (SCTR). This ranking system ranges from zero to one hundred with one hundred being the strongest and zero the weakest. Healthcare, technology and industrials are at the top of the list with strong SCTRs (above 75). They are stronger than the S&P 500 SPDR (SPY) and are leading the market. This third of the market is fine.

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The other two thirds is not. The next six CandleGlance charts show sectors with SCTRs that are lower than the SCTR for SPY, which is the benchmark SCTR. The Consumer Discretionary SPDR (XLY) has underperformed the entire month and its SCTR moved to a twelve month low this week. The Finance SPDR (XLF) was holding up well last week, but broke down this week and its SCTR moved below 50 for the first time since September 2012. Relative weakness in these two offensive sectors is negative for the market and suggests that some sort of correction is underway, which means we may see a 7-10% pulled in the S&P 500.

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Good weekend and good trading!
--Arthur Hill CMT

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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