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.
Click this image for a live chart
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.
Click this image for a live chart
Good weekend and good trading!
--Arthur Hill CMT
