The Technical Dynamics Among The 11 Sector ETFs Continue To Be Confused

Richard Suttmeier

The technology sector ETF remains the outperformer year to date with a gain of 21.5% year to date and in bull market territory 28.3% above its post-election low. The weekly chart remains positive, as this ETF set a new all-time intraday high on Friday.

In second place remains the healthcare sector ETF up 17.8% year to date and in bull market territory up 20.1% since its post-election low. The weekly chart remains neutral even though the ETF set a new all-time intraday high on Friday.

The finance sector has slipped to second place with a bull market post-election gain of 25.2%, with its weekly chart still neutral. 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”.

The only sector ETF in correction territory is still the energy sector ETF, down 15.6% year to date and deep into correction market territory down 19% since its post-election high of $78.45 set on Dec. 12.

SPDR Dow Jones REIT ETF (RWR)

The weekly chart for the REIT Sector ETF ($93.45 on Sept. 1) has a positive weekly chart with the ETF above its five-week modified moving average of $92.79. The 200-week simple moving average is the “reversion to the mean” at $88.85, last tested during the week of Feb. 12, 2016 when the average was $81.06. The 12x3x3 weekly slow stochastic reading ended last week at 47.82 up from 46.89 on Sept. 25.

Investment Strategy: Buy weakness to my monthly value level of $92.62. Sell strength to my semiannual risky level of $97.61.

Materials Sector SPDR Fund (XLB)

The weekly chart for the Materials Sector ETF ($55.43 on Sept. 1) is neutral with the ETF above its five-week modified moving average of $54.44. The 200-week simple moving average is the “reversion to the mean” at $48.12, last tested during the week of July 1, 2016 when the average was $44.51. The 12x3x3 weekly slow stochastic reading declined to 54.18 last week down from 55.23 on Aug. 25.

Investment Strategy: Buy weakness to my quarterly value level of $47.60. Sell strength to my semiannual and monthly risky levels of $55.26 and $57.27, respectively. My annual risky level is $61.72.

Industrial Select Sector SPDR Fund (XLI)

The weekly chart for the Industrial Sector ETF ($68.52 on Sept. 1) is neutral with the ETF above its five-week modified moving average of $68.06. The 200-week simple moving average is the “reversion to the mean” at $56.70, last tested during the week of Jan. 22, 2016 when the average was $47.92. The 12x3x3 weekly slow stochastic reading slipped to 45.30 last week down from 53.52 on Aug. 25.

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, $71.45 and $70.05, respectively.

Consumer Discretionary Select Sector SPDR Fund (XLY)

The weekly chart for the Consumer Discretionary Sector ETF ($90.07 on Sept. 1) is neutral with the ETF above its five-week modified moving average of $89.74. The 200-week simple moving average is the “reversion to the mean” at $76.10. The 12x3x3 weekly slow stochastic reading slipped to 34.47 last week down from 40.88 on Aug. 25.

Investment Strategy: Buy weakness to my quarterly value level of $87.57. Sell strength to my monthly, annual and semiannual risky levels of $96.50, $97.00 and $97.38, respectively.

Consumer Staples Select Sector SPDR Fund (XLP)

The weekly chart for the Consumer Staples Sector ETF ($54.97 on Sept. 1) is neutral with the ETF just below its five-week modified moving average of $55.06. The 200-week simple moving average is the ‘reversion to the mean” at $49.56. The 12x3x3 weekly slow stochastic reading bumped up to 33.31 last week up from 31.86 on Aug. 25.

Investment Strategy: Buy weakness to my annual value level of $46.91. Sell strength to my semiannual, monthly and annual risky levels of $57.86, $58.02 and $58.03, respectively.

Energy Select Sector SPDR Fund (XLE)

The weekly chart for the Energy Sector ETF ($63.58 on Sept. 1) is negative with the ETF below its five-week modified moving average of $64.25. This ETF is below its 200-week simple moving average, or “reversion to the mean” of $75.35 last tested during the week of Dec. 16, when the average was $77.65. The 12x3x3 weekly slow stochastic reading slipped to 23.18 last week down from 24.66 on Aug. 25.

Investment Strategy: Buy weakness to my monthly and quarterly value levels of $59.11 and $57.58, respectively. Sell strength to my semiannual risky level of $70.39.

Financial Select Sector SPDR Fund (XLF)

The weekly chart for the Financial Sector ETF ($24.77 on Sept. 1) is neutral with the ETF just above its five-week modified moving average of $24.73. The 200-week simple moving average is the “reversion to the mean” at $19.93, last tested during the week of July 1, 2016 when the average was $17.58. The 12x3x3 weekly slow stochastic reading slipped to 69.87 last week down from 74.56 on Aug. 25.

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 risky level of $25.09. Note that this ETF is below its June 2007 high of $30.83.

Utilities Select Sector SPDR Fund (XLU)

Courtesy of MetaStock Xenith

The weekly chart for the Utilities Sector ETF ($54.80 on Sept. 1) has a positive weekly chart with the ETF above its five-week modified moving average of $53.93. The 200-week simple moving average is the “reversion to the mean” at $45.93. The 12x3x3 weekly slow stochastic reading rose to 78.57 last week up from 72.28 on Aug. 25.

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 $56.52 and $56.64, respectively.

Health Care Select Sector SPDR Fund (XLV)

Courtesy of MetaStock Xenith

The weekly chart for the Health Care Sector ETF ($81.23 on Sept. 1) is neutral with the ETF above its five-week modified moving average of $79.33. The 200-week simple moving average is the “reversion to the mean” at $68.82. The 12x3x3 weekly slow stochastic reading slipped to 64.11 last week down from 65.61 on Aug. 25.

Investment Strategy: Buy weakness to my annual and quarterly value levels of $70.42 and $78.09, respectively. Sell strength to my monthly and semiannual risky levels of $85.10 and $87.40, respectively.

Technology Select Sector SPDR Fund (XLK)

Courtesy of MetaStock Xenith

The weekly chart for the Technology Sector ETF ($58.78 on Sept. 1) is positive with the ETF above its five-week modified moving average of $57.29. The 200-week simple moving average is the “reversion to the mean” at $43.63, last tested during the flash crash of Aug. 24, 2015 when the average was $34.22. The 12x3x3 weekly slow stochastic reading rose to 77.30 last week up from 75.45 on Aug. 25.

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 $61.90.

iShares Transportation Average ETF (IYT)

Courtesy of MetaStock Xenith

The weekly chart for the Transportation Sector ETF ($168.64 on Sept. 1) is neutral with the ETF above its five-week modified moving average of $167.21. The 200-week simple moving average is the “reversion to the mean” at $148.87, last tested during the week of July 8, 2016 when the average was $132.92. The 12x3x3 weekly slow stochastic reading declined to 34.07 last week down from 40.29 on Aug. 25.

Investment Strategy: Buy weakness to my quarterly value level of $158.89. Sell strength to my monthly, semiannual and annual risky levels of $170.91, $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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