Leading U.S. Sector ETFs Send Mixed Messages

Every bull market is built on the shoulders of strong leading sectors. Things tend to get dicey when the leading sectors start to lag. Here’s a look at three leading sector ETFs and some interesting developments.

Looking at leading or lagging sectors can provide clues about the overall health of a bull market.

This article will look at three leading sectors.

Retail Sector – SPDR S&P Retail ETF

The SPDR S&P Retail ETF (NYSEArca: XRT) soared 42.29% in 2013 and was heading for a strong finish (many thought). Retailers love the holidays (November/December), but the 2013 holiday period wasn’t kind to retailers.

As the XRT chart shows, retailers topped in the last week of November and are threatening to break below green support.

A breakdown around 83.50 and 80 for XRT would spell trouble.

Financial Sector – Financial Select Sector SPDR ETF

The financial sector has been leading the S&P 500 for much of 2013 and confirmed Wednesday’s new S&P 500 high (XLF closed 2013 with a 35.52% gain).

Unlike the S&P 500, the financial select sector SPDR (NYSEArca: XLF) is trading well below its all-time high. In fact, it is bumping against 50% Fibonacci retracement resistance at 22.01.

It will take sustained trade above 22.01 to unlock higher up side targets.

Small Cap Stocks – iShares Russell 2000 ETF

Small cap stocks tend to outperform large cap stocks in December/January, but the iShares Russell 2000 ETF (NYSEArca: IWM) has been on fire almost non-stop, up 38.69% in 2013.

Next notable resistance for IWM is around 119 (2002 Fibonacci projection).

Corresponding resistance for the Russell 2000 Index is at 1,166. Unlike IWM, the Russell 2000 Index is already trading above this resistance.

Summary

It’s said that a fractured market is a sick market. We are certainly seeing some ‘unhealthy’ divergences between the various leading sectors (this doesn’t even take into consideration the most recent Dow Theory divergence).

However, XLF and the Russell 2000 Index are at the verge of overcoming their resistance levels. A strong financial sector and small cap segment could also buoy the S&P 500.

The strong 2013 performance of all three leading sectors begs the question if there’s any ‘gas left’ for 2014. The following articles takes a look at how much up side is left:

Did the Strong 2013 Market Cannibalize 2014?

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

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Weekly ETF SPY: XRT – Profitable Detail about Retail

The retail sector measured by the SPDR S&P Retail ETF trades less than 1% below its all-time high. But with recent market weakness, it may be beneficial to look at sectors that carry magnified down side risk, such as XRT.

The retail sector has been on fire, with the SPDR S&P Retail ETF (XRT) soaring 378% from its 2008 low to its 2013 high.

XRT is less than 1% below its all-time high and the recent weakness thus far looks like nothing more than a tempest in the teapot.

But what goes up must come down and after a 378% gain there’s a decent ‘coming down’ risk. Discussed below are some key support levels likely to trigger a deeper correction and support levels likely to halt the decline.

Wednesday’s drop registered a bullish percentR low-risk entry, which sent prices higher on Thursday. The percentR low-risk entry occurred against support (prior high/low) around 68.70 (see daily XRT chart).

This is now important short-term support. A daily close below 68.70 would trigger a sell signal for aggressive investors (with a stop-loss just above 68.70 (as long as prices remain above 68.70, there’s not much to get excited about).

Additional support is provided by the 50-day SMA at 68.34. After that comes a small ‘air pocket,’ an area without significant support. This is followed by a support cluster at 65.5 – 63.

In short, sustained trade below 68.70 should take XRT to 63 – 65.5. There’s more down side risk, but we’d have to evaluate the chart structure once we get there.

The weekly XRT chart shows prices cradled by a 4+ year parallel trend channel. The dashed center line of this trend channel has provide support numerous times and may do so again. If it doesn’t, watch out for lower prices.

Aside from the UltraShort Consumer Services ProShares (SCC), which provides 2x inverse exposure to the consumer discretionary sector, there is no short ETF that tracks XRT or the retail sector. However, investors may short XRT or buy/sell options.