One of the tools we use at DecisionPoint to review sector performance and strength a CandleGlance with our PMO and key moving averages. It wasn't too long ago that every sector was displaying negative momentum. Now, we are seeing broad participation, with every sector having a PMO rising -- except for XLY, which pulled back this week.
Other interesting observations from the CandleGlance would be the breakouts of XLK and XLP. These sectors are on the opposite ends of the spectrum in terms of defensive v. aggressive. Seeing both of these sectors breaking out hints that the market could be on track to make new all-time highs.
Communication Services (XLC) has been a laggard, holding onto its IT Trend Model "Dark Cross" Neutral signal (20-EMA < 50-EMA while 50-EMA > 200-EMA) for weeks. We now have another sector with an IT Trend Model "Dark Cross" Neutral signal: Financials (XLF). The PMO is technically rising on XLF, but is ready to turn back down. There is a strong bearish bias given %Stocks > 20/50-EMAs are lower than the SCI reading. This suggests that XLF could find itself falling further.
Read on...
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The sectors with the most potential moving into next are XLK and XLP, based on their breakouts and participation percentages.
A PMO crossover BUY signal was generated on XLK. The SCI is about to have a positive crossover of its signal line as well. I like the positive RSI and improving Stochastics. Participation percentages are above the SCI reading, giving it a bullish short-term bias. The breakout is icing on the cake. I like XLK better than XLP based on the relative strength line. XLK has been showing relative strength since May.
XLP also triggered a PMO crossover BUY signal. The indicators look very much like XLK. Participation is higher than on XLK, but that relative strength line is the issue, as it has been flat or trending down this year. If the market decides to turn over next week, I would expect this sector to perform better than XLK. You'll also notice on the RRG that XLK looks the most healthy in the short- and intermediate-terms.
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Technical Analysis is a windsock, not a crystal ball.
--Erin Swenlin
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Price Momentum Oscillator (PMO)
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