Spreading Weakness Among 11 Sector ETFs Suggest That The Stock Market Is Vulnerable

The S&P 500 is divided into 11 sectors and each sector can be traded using its own exchange-traded fund.

The technology sector ETF remains the outperformer year to date with a gain of 18.1% year to date and in bull market territory 24.7% above its post-election low, but last week ended with a “key reversal”.

In second place remains the healthcare sector ETF up 14% year to date and up 16.2% since its post-election low. This ETF will have a negative weekly chart without a rebound this week as investors get concerned about the lack of healthcare reform.

The finance sector has the largest post-election gain of 25% but it ended last week with a “key reversal”. The financial ETF is below its all-time intraday high of $30.83 set during the week of June 2007, which is a sign that the banking system has not fully recovered from the “Great Credit Crunch”. Last week investors had the opportunity to sell at my monthly risky level at $25.59 on Aug. 8.

The only sector ETF in correction territory is still the energy sector ETF. Its down 15.1% year to date and deep into correction territory down 18.5% since its post-election high of $78.45 set on Dec. 12.

Investors are also getting impatient with the lag of an infrastructure spending bill as the materials and industrial sector ETFs have negative weekly charts.

This Week’s Scorecard For The 11 S&P 500 Exchange-Traded funds

SPDR Dow Jones REIT ETF (RWR)

The weekly chart for the REIT Sector ETF ($91.47 on Aug. 11) has a negative weekly chart with the ETF below its five-week modified moving average of $92.81. The 200-week simple moving average is the “reversion to the mean” at $88.62, last tested during the week of Feb. 12, 2016 when the average was $81.06. The 12x3x3 weekly slow stochastic reading slipped to 57.16 last week down from 57.86 on Aug. 4.

Investment Strategy: Buy weakness to the 200-week simple moving average at $88.88.62. Sell strength to my monthly and semiannual risky levels of $95.58 and $97.61, respectively.

Materials Sector SPDR Fund (XLB)

Courtesy of MetaStock Xenith

The weekly chart for the Materials Sector ETF ($53.48 on Aug. 11) is negative with the ETF below its five-week modified moving average of $54.24. The 200-week simple moving average is the “reversion to the mean” at $47.96, last tested during the week of July 1, 2016 when the average was $44.51. The 12x3x3 weekly slow stochastic reading declined to 74.72 last week down from 81.47 on Aug. 4, below the overbought threshold of 80.00.

Investment Strategy: Buy weakness to my quarterly value level of $47.60. Sell strength to semiannual and monthly risky levels of $55.26 and $55.74, respectively. My annual risky level is $61.72.

Industrial Select Sector SPDR Fund (XLI)

Courtesy of MetaStock Xenith

The weekly chart for the Industrial Sector ETF ($67.86 on Aug. 11) is negative with the ETF below its five-week modified moving average of $68.27. The 200-week simple moving average is the “reversion to the mean” at $56.41, last tested during the week of Jan. 22, 2016 when the average was $47.92. The 12x3x3 weekly slow stochastic reading slipped to 79.79 last week falling below the overbought threshold of 80.00.

Investment Strategy: Buy weakness to my quarterly value level of $65.11. Sell strength to my semiannual, monthly and annual risky levels of $69.69, $69.84 and $70.05, respectively.

Consumer Discretionary Select Sector SPDR Fund (XLY)

The weekly chart for the Consumer Discretionary Sector ETF ($89.86 on Aug. 11) is negative with the ETF below its five-week modified moving average of $90.33 The 200-week simple moving average is the “reversion to the mean” at $75.71. The 12x3x3 weekly slow stochastic reading slipped to 61.14 last week down from 62.49 on Aug. 4.

Investment Strategy: Buy weakness to my quarterly value level of $87.57. Sell strength to my monthly, annual and semiannual risky levels of $94.60, $97.00 and $97.38, respectively.

Consumer Staples Select Sector SPDR Fund (XLP)

The weekly chart for the Consumer Staples Sector ETF ($55.12 on Aug. 11) is neutral with the ETF just below its five-week modified moving average of $55.19. The 200-week simple moving average is the ‘reversion to the mean” at $49.36. The 12x3x3 weekly slow stochastic reading rose to 34.76 last week up from 33.57 on Aug. 4.

Investment Strategy: Buy weakness to my annual value level of $46.91. Sell strength to my semiannual, annual and monthly risky levels of $57.86, $58.03 and $58.62, respectively.

Energy Select Sector SPDR Fund (XLE)

Courtesy of MetaStock Xenith

The weekly chart for the Energy Sector ETF ($63.94 on Aug. 11) is neutral with the ETF below its five-week modified moving average of $65.39. This ETF is below its 200-week simple moving average, or “reversion to the mean” of $75.70 last tested during the week of Dec. 16, when the average was $77.65. The 12x3x3 weekly slow stochastic reading rose to 34.33 last week up from 32.89 on Aug. 4.

Investment Strategy: Buy weakness to my monthly and quarterly value levels of $63.56 and $57.58, respectively. Sell strength to my semiannual risky level of $70.39.

Financial Select Sector SPDR Fund (XLF)

Courtesy of MetaStock Xenith

The weekly chart for the Financial Sector ETF ($24.73 on Aug. 11) is positive but overbought with the ETF above its five-week modified moving average of $24.71. The 200-week simple moving average is the “reversion to the mean” at $19.82, last tested during the week of July 1, 2016 when the average was $17.58. The 12x3x3 weekly slow stochastic reading slipped to 82.40 last week but remains just above the overbought threshold of 80.00. Given the “key reversal” this chart will likely be negative this week.

Investment Strategy: Buy weakness to my annual and quarterly value levels of $23.65 and $22.47, respectively. My semiannual pivot is $24.35. Sell strength to my monthly and weekly risky levels of $25.59 and $25.82, respectively. The $25.59 level was tested last week as a selling opportunity. Note that this ETF is below its June 2007 high of $30.83.

Utilities Select Sector SPDR Fund (XLU)

The weekly chart for the Utilities Sector ETF ($53.74 on Aug. 11) has a positive weekly chart with the ETF above its five-week modified moving average of $53.07. The 200-week simple moving average is the “reversion to the mean” at $45.69. The 12x3x3 weekly slow stochastic reading rose to 56.65 last week up from 50.71 on Aug. 4.

Investment Strategy: Buy weakness to my semiannual and annual value levels of $51.98 and $50.72, respectively. Sell strength to my monthly and quarterly risky levels of $56.53 and $56.64, respectively.

Health Care Select Sector SPDR Fund (XLV)

Courtesy of MetaStock Xenith

The weekly chart for the Health Care Sector ETF ($78.60 on Aug. 11) is neutral with the ETF below its five-week modified moving average of $79.04. The 200-week simple moving average is the “reversion to the mean” at $68.41. The 12x3x3 weekly slow stochastic reading ended last week at 80.71 and will likely fall below the overbought threshold of 80.00 this week.

Investment Strategy: Buy weakness to my quarterly value level of $70.42. My annual pivot is $78.09. Sell strength to my monthly and semiannual risky levels of $82.23 and $87.40, respectively.

Technology Select Sector SPDR Fund (XLK)

The weekly chart for the Technology Sector ETF ($57.10 on Aug. 11) is positive with the ETF above its five-week modified moving average of $56.64. The 200-week simple moving average is the “reversion to the mean” at $43.26, last tested during the flash crash of Aug. 24, 2015 when the average was $34.22. The 12x3x3 weekly slow stochastic reading inched up to 78.31 last week up from 78.19 on Aug. 4. Beware that last week was a “key reversal” and a down week this week will result in a negative weekly chart.

Investment Strategy: Buy weakness to my semiannual, annual and quarterly value levels of $55.95, $55.49 and $53.92, respectively. Sell strength to my monthly risky level of $60.07.

iShares Transportation Average ETF (IYT)

The weekly chart for the Transportation Sector ETF ($165.40 on Aug. 11) is negative with the ETF below its five-week modified moving average of $168.30. The 200-week simple moving average is the “reversion to the mean” at $148.25, last tested during the week of July 8, 2016 when the average was $132.92. The 12x3x3 weekly slow stochastic reading declined to 63.95 last week down from 74.30 on Aug. 4.

Investment Strategy: Buy weakness to my quarterly value level of $158.89. Sell strength to my monthly, semiannual and annual risky levels of $170.08, $181.18 and $182.54, respectively.

Methodology

Investors should focus on the basic technical analysis tools focusing on weekly charts, and the value levels at which to “buy on weakness” and risky levels at which to “sell on strength”.

When looking at the weekly charts below, keep an eye on the 200-week simple moving averages shown in green. Investors should consider this level as the "reversion to the mean". The "reversion to the mean" is an investment theory that the price or an index, stock or ETF, will eventually return to a longer-term simple moving average, and the 200-week is simple to track. A ticker trading above its “reversion to the mean” will eventually decline back to it on weakness. Similarly, a ticker trading below its “reversion to the mean” will eventually rebound to it on strength.

When reading a weekly chart, you will see the five-week modified moving average in red. At the bottom of the graph from left to right, you will see a measure of technical momentum. I advocate the 12x3x3 weekly slow stochastic, which scales from 0.00 to 100.00. Readings rising or overbought above 80.00 are positive. Readings declining of oversold below 20.00 are negative. A technical buy signal occurs when stochastics rises above 20.00 with the ticker ending the week above its five-week modified moving average. A technical sell signal occurs when stochastics falls below 80.00 with the ticker ending the week below its five-week modified moving average.

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