Here's a look at the 30 minute bar chart:
Now that we have seen the broad markets rally, we need to see who exactly it is that's leading the way higher. Its time again to take a look at the key sectors and see which ones are relatively strongest.
XLF- Financials
The Financials have been relatively strong for 2 years now. Once again making new multi-year highs. The rally will not be in jeopardy until the financials roll over. Levels to watch on the downside are 18.45 and most importantly 17.00. As long as those levels are holding, the markets will continue higher.
XLY- Consumer Discretionary
Discretionary continues to be strong and a leader in the market. This is reflective of a strong consumer and a steadily improving economy. Continues to make new highs.
XLK- Technology
Finally! The Tech breakout I have been waiting for, oh so patiently is now here. There has been a strong rotation into the Technology space with big winners such as MSFT, INTC, GOOG, and AAPL recently. Now we will need to watch how price handles this over head resistance at prior highs...Relative strength seems to think a breakout is coming. A move above $32 would be big for the markets. Equally a rollover here and breakdown of $29 would be bad.
XLI- Industrials
Similarly to Tech, Industrials have caught a bid this week and continues to make higher highs. Love the performance breakout.
XLB- Basic Materials
Materials have also broken above key price and relative performance levels. It seems like higher prices are ahead. Names I like in Basic Materials are MOS and PPG
XLE- Energy
Energy is still relatively weak despite price finishing at its highest levels in nearly 2 years. Continue to wait and see a bit more before jumping in too strongly into Energy. Recently Energy has been a leader, however the strength trend is still lower overall.
XLP- Consumer Staples
This is one of the most important charts I look at everyday. When Staples are outperforming the market, caution is needed. As those times very typically coincide with declines for the general averages.
So here is what I like about this chart:
-The relative breakout we saw and were watching closely last week, failed to follow through and it has rolled over.
-Secondly, when the Relative Strength rolled over, there was huge selling volume (distribution day) as seen by that big spike on the volume chart. A rotation of that magnitude should catch your attention.
Basically what this is saying is that some BIG money came out of Staples at the end of last week. We can see it by the largest volume day of the past 2 years and the inability for the Staples to hold their relative strength over the S&P. The notable thing about this is that after the big distribution day in the Staples, we have seen several of the under performing groups catch a bid (XLK, XLI, XLB)...I wonder where the money that came out of the Staples went into? : )
Important point to note: once the Staples make their way to the lower end of the relative chart, it will be time to start thinking about playing some defense...Maybe even go long the XLP for a quick and dirty way to play it. But we will deal with that when we get there.
XLV- Healthcare
Healthcare is technically a defensive group, but the way this has been performing... You should be exposed to this space in some way. I like ABT, UNH, PFE
XLU- Utilities
After a very nice run, Utilities can now be flushed. This chart is looking all kinds of in trouble. Relative strength has broken even the most conservative of trend support, price has failed its uptrend support and made a lower low in the uptrend on Thursday, and volume has been big to the downside over this past week. Rotation, rotation, rotation.
There is a saying that the market will usually offer you a gracious exit...if you take it. For anyone long utilities at the close on Friday, be thankful that 50 DMA was sitting there to slow the free-fall. Take the small bounce as an opportunity, and reduce positions.
GLD- Gold
Gold has been in a downtrend for almost a year now. After the recent breakdown of key support at $148, price has formed what looks like a bear flag pattern. There are a lot of gold bugs out there currently who get nearly hysterical if you question their doomsday scenarios. But the point is that gold has been an under performing asset since last year. I do understand the thesis the gold believers tout, but I also invest with what is "actually" happening, not with what I "think" will or should happen. Stories are nice and all, but if the one thing getting in your thesis' way is price, then you will be on the wrong end of a losing trade...
Bottom line, Gold is weak and I am currently short this space with a stop set above $144. For longer term doubters of the yellow metal, $148 is a big level and solid stop.
TLT- 20+ Year Treasuries
Well so much for the comeback in Treasuries. Strength has faded and volume has increased to the downside. I was stopped out of my TLT position last Friday and so far we have seen increased follow through on that move. To prove that Treasuries are really going to roll over this time, we would need to see the prior low near 114 to be taken out. But so far so good.
------
Wrapping up this week's post, I like what I'm seeing in the market's internals right here. I think almost all of these signals are bullish for stocks at least in the short term. The big thing I will be watching going forward will be how well the new relative breakouts we are seeing in Tech, Industrials, and Materials will hold up in the near future. Due to the rapid exits from the more defensive names I think those rotations will continue to find their way into the riskier groups like Tech and Materials. It would have been worrisome to see rotation out of the defensive's and into cash, but what we have seen is the willingness of market players to look to the under-valued high fliers who may just have been taking a breather.
As of the close Friday I am currently just under 70% invested. I took some profits on some out of balance winning positions I had over the past couple weeks and am now in a very comfortable situation should we see any short term weakness. I am positioned to take advantage of any weakness we may see above the 1,600 level. I will be looking for opportunities with my remaining cash to put it to work if nice risk/reward setups come my way.
No comments:
Post a Comment