5 Tempting High Reward S&P 500 Sector ETF Setups

If you like team sports, you know that a team may win even though some of its players had a bad day, or vice versa.

Just as a team is made up of individual players, the S&P 500 is comprised of individual sectors. Not all sectors perform at the same level at the same time, in fact, some may boom while others bust.

Here is a look at some sector ETF setups (boom and bust, ripe and stale):

Health Care Select Sector SPDR ETF (XLV)

The April 17 Profit Radar Report noted that the following about XLV:

The health care sector represented by XLV has taken a beating, too. XLV dropped to the lowest level since January 4, and sentiment has become extremely bearish. Purely based on sentiment, when there was so much pessimism, XLV has rallied over the next month 90% of the time, with an average gain of 5%. Seasonality is positive for the next month as well.

Aside from the green bar, there’s no ‘must hold’ support level, but RSI-2 is over-sold. We are committing a small amount to buying XLV below 86.”

We bought XLV when it dipped below 86 on April 18, and sold XLV when it became over-bought and reached the 5% average gain threshold at 90.50 and May 6.

XLV is now in neutral territory, and the setup has become stale.

Real Estate Select Sector SPDR ETF (XLRE)

The April 14 Profit Radar Report featured the chart below and stated:

The Real Estate Select Sector SPDR (XLRE) looks interesting. 3 support and resistance levels meet up to form resistance at 36.80 on Wednesday. Price is wedging higher with a small bearish divergence. Based on the wedge, the down side risk is significant if price fails to hold support. For now, we will go short if XLRE moves above 36.85 and subsequently drops below 36.50.”

Unfortunately XLRE missed my sell limited by 15 cents. After a sizeable drop, XLRE bounced from support, but a break below that support (around 35) is likely to unlock the next down side target. The potential down side risk could be significant, partially because XLRE’s sector ‘cousin’ may be in trouble.

SPDR S&P 500 Homebuilders ETF (XHB)

The May 5 Profit Radar Report pointed out that: “The SPDR S&P Homebuilders ETF (XHB) is wedging higher, and close to wedge resistance and general resistance with a bearish RSI-35 divergence. In terms of seasonality, May and June are the worst months for XHB. We will short XHB if it spikes above 41.80 and subsequently moves below 41.70 (stop-loss at day’s high). Considering futures, XHB may open lower tomorrow, and we may consider to go short on a drop below 40.70.

XHB fell below lower wedge support, which unlocks significant down side potential. RSI-2 is near over-sold, and a bounce is possible. In fact, any bounce that gets close to the broken purple trend line (such a re-test of previously broken support is often a ‘kiss good-bye’) would be another low-risk set up to go short.

Utilities Select Sector SPDR ETF (XLU)

March 27 Profit Radar Report:

The utility sector (represented by XLU) rallied to new all-time highs with more than 80% of its components at a 52-week high..

In addition, XLU was rejected by trend line resistance. Additional trend channel resistance is around 59.50. Support is around 58.20 and 57.20. There was a bearish RSI-35 divergence on the daily chart.

Based on technicals and statistics, shorting XLU has high odds of being profitable. Unfortunately XLU seasonality is very bullish for March/April. 

XLU could move a bit higher, but we will leg into a short position now (and will probably add more if it moves higher). There is no good inverse utility ETF, so we will short XLU above 58.40.”

XLU is making slow down side progress, but it’s not been able to move below support around 57 – 56.75. A move below support could unlock further down side, but immediate down side may be limited due to a near over-sold RSI-2.

PHLX Semiconductor Index (SOX)

The PHLX Semiconductor Index is often the ‘MVP’ that drives the ‘team’ to more gains (or vice versa). SOX is at a convergence of support (black trend channel and green trend line). If bulls are going to make a stand, it would be here. If not, the next stop is around 1,440.

Continued sector and stock market analysis available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s evaluation of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, 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, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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

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Simple, Common Sense S&P 500 Update

For almost two years, investors were spoiled with low volatility and high returns, but recent market action has rattled the cage.

Will there be more ‘cage rattling!’ If so, how much?

Sometimes a simple common sense analysis is the best one. KISS.

KISS

The February 11 Profit Radar Report stated that: “For well over a year stocks have almost exclusively gone up, slow but steady. For the past two weeks, stocks have gone down quickly. What’s next? The temptation and trap is to think two dimensional – up or down – since that’s most of what we’ve experienced lately. However, stocks could also go sideways for a period of time.”

On March 27, the S&P 500 was less than 7 points away from its February 9 close. Sideways indeed.

The February 11 Profit Radar Report also provided common sense long-term context via the chart and commentary below:

1 – 2 – 3 is how we label the rally from the February 2016 low (according to Elliott Wave Theory – EWT). Wave 3 (wave 5 of wave 3 to be exact) extended much higher than normal (blue box).

Based on EWT, wave 3 is followed by wave 4, which is where we are currently at. Waves 4 are generally choppy, range-bound, long-winded, unpredictable corrections that retrace ideally 38.2% of the preceding wave 3. The 38.2% Fibonacci retracement level is at 2,536.

In terms of price, wave 4 has already reached its down side target. In terms of time, wave 4 would be unusually short.”

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

Wave 3 lasted almost 15 month (November 4, 2016 – January 26, 2018). The February ‘mini meltdown’ inflicted an 11.8% loss in only 10 days. Is a 10-day pullback commensurate to a 15-month rally? Not really!

The Conclusion (and Solution)

After looking at dozens of different indicators and patterns, the February 11 Profit Radar Report concluded as follows:

We’ve been looking to buy the dip. Is this the dip to buy? When boiling down all our indicators to a few sentences, we find that a bounce from Friday’s (February 9) low is probable. The bounce however may turn into a period of range-bound up-and-down market action, not an immediate directional up move. A path similar to 2011 (retest of original panic low). Hopefully volatility in coming days/weeks will provide a better (lower) entry.”

Find out which low-risk sector ETF the Profit Radar Report recommended on February 11.

The chart below compares the 2011 correction with the 2018 pullback (blue box). In 2011, it took 25 days before the S&P tested (and briefly exceeded) the initial panic low. A similar pattern is developing now.

Here are 3 factors to keep in mind:

  1. This wave 4 correction does not have to exceed the February low to be complete
  2. Due to the duration of the preceding rally, this wave 4 correction could last longer than in 2011
  3. In 2011, it took almost 5 months for the S&P to rally from the its low to a new high

The March 24 Profit Radar Report outlined the ideal path going forward along with target levels and an actual price projection.

Naturally we will be alert for curveballs (one of which is over the top bearish), but if the S&P 500 follows our ideal path reasonably close, it should set up a solid buying opportunity.

Continued updates and analysis is available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, 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, 17.59% in 2014, and 24.52% in 2015.

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

 

Is the Dow Jones Transportation Average Forming a Bull Flag?

The Dow Jones Transportation Average (DJT) has been on fire, since late 2012.

A V-shaped correction, and a prolonged period of sideways trading interrupted the parabolic up trend and there’s been no net gain since September 2014.

Trading action since the November 28 all-time high has been contained by a parallel channel, that looks like a flag.

In fact, the DJT may have formed a bullish flag formation.

A bull flag is described as a consolidation period that interrupts a sharp, almost vertical rally. The consolidation range is defined by a parallel channel with a slant to the down side, and tends to separate two halves of a steep rally.

A break above the upper boundary (around 9,150) would be the first step of a bullish breakout, with a measured up side target around 10,000.

Buying against support (around 8,500) is a low-risk buying opportunity to get in on the ground floor. It’s low-risk because the nearby support level provides a clear point of ruin (stop-loss).

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A break below 8,450 would void the bull flag and allow for much lower prices.

I doubt there’s enough buying power to lift the DJT to 10,000, but trade around 8,500 (or breakout above 9,150) offers some low-risk setups.

The iShares Transportation Average ETF (NYSEArca: IYT) is the most widely traded transportation sector ETF.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, 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 and 17.59% in 2014.

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

Time is Ripe to Get Dirty with This Out-of-Favor Sector ETF

The energy sector has been hammered by a 31% drop in crude oil prices. OPEC is a mere shadow of its prior glory days and analysts project further declines, as much as another 60%. Ironically, now might be the time to get dirty with oil/energy.

Baron Rothschild’s famous words encourage investors to buy when there’s blood on the streets. What about when there’s oil on the street?

Pull up the Hummer and Suburban, because oil (and gasoline) is the cheapest it’s been in well over four years.

According to many analysts, oil is doomed to fall much further. One price target pegged oil at $30/barrel, another 60% lower than today.

Unless you’re Russia, Saudi Arabia or perhaps a hardcore Prius driver, there’s nothing wrong with low prices, but some charts suggest that the oil/energy sector may be getting ready for a comeback.

The Energy Select Sector SPDR ETF (NYSEArca: XLE) has traversed within a defined trend channel from 2009 until today. As the weekly XLE bar chart shows, XLE recently dropped towards the lower end of the channel.

Essentially the same is true for the SPDR S&P 500 Oil & Gas Exploration & Production ETF (NYSEArca: XOP). XOP more deliberately tested channel support and is trading just above it.

Technical support areas, such as the ones shown above, don’t guarantee a change of trend, but they do highlight price levels where a change of trend is more probable.

The third chart shows the XLE:S&P 500 ratio. XLE underperformed the S&P 500 since April 2011. The gray trend channel suggests that the days of XLE’s underperformance may be numbered.

The November 5 Profit Radar Report wrote that: “We are looking for potential opportunities to buy large caps (Dow Jones, S&P 500) and possibly materials (XLB) and Energy (XLE).”

We got to pick up XLB, which has had a very nice run, and are waiting for a low-risk buy trigger for XLE. It looks like we’re getting close. Continued coverage will be provided via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, 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.

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.

Sector ETF Analysis: 9 Sectors – 1 Message: Watch Important Technical Support

The S&P 500 Index is generally sub-divided into nine sectors. How the leading (or lagging) sectors behave can provide valuable forecasting insight. This article takes a look at the three leading year-to-date performers and their technical message.

The S&P 500 Index and the SPDR S&P 500 ETF (SPY) are made up of ten industry sectors. State Street Global Advisors subdivides the S&P into nine popular sector ETFs, called Select Sector SPDRs.

There are ten sectors, but they are condensed into nine ETFs as the technology and telecommunication sector are represented by the same ETF, XLK.

The first graph below provides a visual of the S&P 500 sectors and the sector allocation for the Select Sector SPDRs.

The second graph shows the year-to-date performance of each sector.

Each sector corresponds differently to economic developments and some sectors may boom while others bust. That at least used to be the case. During the 2000 decline about half of the sectors delivered positive returns, the remaining ones negative returns.

Since the beginning of the QE market, most sectors are up, just at a different pace.

Right now, most sectors are just above technical support and are sending the same technical message: Watch out how each sector performs around support. If support fails … watch out.

Let’s look at the technical picture of the three biggest and best performing sectors individually:

Technology:

The technology sector got hit hard in recent weeks. Nevertheless, as of Thursday’s close the Technology Select Sector SPDR (XLK) is up 22.48% year-to-date.

The technical picture for XLK looks plain ugly. XLK dropped through trend line support going back to the October 2011 lows (at 29.65) and the 200-day SMA at 29.19.

The technical picture for the Nasdaq-100 looks similar. December 30, 2011 was the last time the Nasdaq-100 closed below the 200-day SMA. It’s been trading above the 200-day SMA for more than 200.

Here’s a surprising factoid: Since 1990 the Nasdaq-100 had seven streaks of trading above the 200-day SMA for more than 200 days. The first close below the 200-day SMA was bearish only one time.

Owners of Rydex funds have grown very skeptical of the technology sector. The percentage of assets invested into Rydex technology funds has dropped to an all time low.

On August 5, the Profit Radar Report pointed out a similar extreme in the financial sector: “Financials are currently under loved (who can blame investors). Of the $900 million invested in Rydex sector funds, only $18 million (2%) are allocated to financials. With such negative sentiment a technical breakout (close above 14.90) could cause a quick spike in prices.”

The Financial Select Sector SPDR ETF (XLF) rallied as much as 10% after it broke above 14.90.

Even though the technical picture of the technology sector looks quite bearish, there’s reason to believe that the down side is limited. A bullish opportunity may develop soon.

Financials:

The financial sector, represented by the Financial Select Sector SPDR (XLF), is holding up much better than the overall market. The chart for XLF is a bit more decorated with trend lines as the Profit Radar Report has provided updates for XLF since it’s August 6 break out.

Immediate trend line support for XLF is at 15.65. The 50-day SMA is at 15.68. Immediate resistance is at 16.05. Aside from a break of the minor red trend line support, the recent decline hasn’t done any technical damage to the financial sector.

Consumer Discretionary

The Health Care (XLV) and Energy Select Sector SPDR (XLE) are slightly bigger than the Consumer Discretionary SPDR (XLY), but XLY outperformed XLV and XLE.

XLY is just barely holding on to its position above the trend line from the October 2011 low (at 45.60), but the 200-day SMA is not until 44.27. Support based on prior supply/demand inflection points is around 45.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.