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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Two Diametrically Opposed Sector Opportunities

The S&P 500 is trading at the same level where it was on July 8. Such a 15-week chop zone is pretty boring, but it doesn’t stop there. The S&P hasn’t made any net progress since May 2015.

When the broad market is stale, it makes sense to look at other opportunities.

The Profit Radar Report always scans various markets and sectors for sentiment extremes or seasonal trades with the potential to provide returns independent of the broad market.

Thus far this year, we’ve found such returns in gold, silver, natural gas, small caps, VIX and the utility sector.

Utilities ETF

The October 12 Profit Radar Report pointed out that every single utility sector stock has been below its 50-day SMA for more than five days. An extremely rare oversold condition.

The October 13 Profit Radar Report observed that: “XLU (Utilities Select Sector SPDR ETF) jumped above trend line resistance on strong volume. This increases the odds that some sort of a low is in place. We are buying XLU at 47.80.”

We didn’t want to chase the S&P 500 when it bounced from its 2,120 support level on October 13, but wanted some low-risk exposure to equities.

Being oversold and overhated, XLU fit the bill.

Sometimes there is no particular up side target (as is the case with XLU), but identifying low-risk buying opportunities allows investors to either grab quick gains or hold on and ‘play with house money.’

Bank ETF

The banking sector is approaching a very strong resistance cluster.

The chart of the SPDR S&P Bank ETF (KBE) shows price near trend line resistance, 78.6% Fibonacci retracement, and where wave A equals wave C.

Additionally, there was a bearish RSI divergence at the October 27 high.

Seasonality is bearish for the first three weeks of November.

This doesn’t mean that bank stocks will crash, but it certainly indicates that buying KBE right around 35 is a bad idea.

There is no short bank ETF, but traders may consider shorting KBE or buying inverse ETFs like SEF or SKF. This setup may only lead to a short-term correction.

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.

Energy Sector ETF (XLE) Drops To Triple Support

It’s not exactly been a high-octane year for oil and energy stocks. Here’s an interesting long-term chart for the Energy Select Sector SPDR ETF (NYSEArca: XLE).

After chopping back and forth for all of 2015, XLE has dropped down to long-and short-term support.

The black trend channel dates back to the March 2009 low, and the green trend line originates at the secondary January 14 low.

Both levels intersect around 77 this week.

Although XLE remains in a chop zone that’s watered down many support/resistance levels, 77 might be a number to keep in mind if you’re thinking about buying/selling XLE (don’t sell until support is broken, and vice versa).

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.

Simon Says: SPDR S&P Bank ETF (KBE) Gnawing on Key Resistance

The Financial Select Sector SPDR ETF (NYSEArca: XLF) has been leaping from one new recovery high to the next.

But its Wall Street cousin, the SPDR S&P Bank ETF (NYSEArca: KBE), has been stuck in a 12-month trading range.

The chart below plots KBE against XLF. KBE is back at key resistance around 34.

KBE is at an inflection point. Could KBE become the (sector) tail that wags the (broad market) dog?

The December 21 Profit Radar Report showed two S&P 500 projections (one long-term bullish, one short-term bearish) and stated:

Stocks may hit an inflection point once the S&P 500 and Russell 2000 record new all-time highs. Depending on measures of market breadth at the time, we will either scale down (or protect) our long exposure or add to it.”

The S&P and R2K did hit new all-time highs and are close to their inflection point.

I’m not sure if KBE will be the tail that wags the dog, but KBE confirms that the market should be watched carefully for either acceleration or temporary breakdown.

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.

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.

Risk Off Gauge That Correctly Signaled 2000 and 2007 Top is In Freefall, But …

Twice in 2014 we looked at the XLY:XLP risk on/risk off ratio for clues about the market’s next move. Twice the XLY:XLP ratio pointed us in the right direction. Now it’s pointing lower, which contradicts an even more powerful indicator.

The ratio of two diametrically opposed asset classes often provides insightful clues about what investors are doing.

The XLY:XLP ratio is one such example.

Unlike many hypothetical indicators, the XLY:XLP ratio is an actual money flow indicator, based on what investors are doing, not saying or thinking.

XLY represents the Consumer Discretionary Select Sector SPDR ETF. XLP represents the Consumer Staples Select Sector SPDR ETF.

The XLY:XLP has offered some excellent signals and tell tale signs both long-term and short-term.

Long-term:

A breakdown of the XLY:XLP ratio correctly signaled the 2000 and 2007 market tops.

Short-term:

We looked at the XLY:XLP ratio twice this year.

The first time was on May 20, when it was at the verge of breaking down.

The conclusion back then was that there were simply to many bears to drive the S&P 500 down.

The second time was on August 7, when the XLY:XLP ratio rose despite an S&P 500 selloff (see chart below for dates).

The conclusion was that the XLY:XLP ratio rally actually reduced the risk of an immediate stock market decline. The S&P 500 rose steadily for the next 90 days or so.

This time around the picture looks different, as the ratio has broken below long-term trend line support. This suggests that the time of shallow, V-shaped corrections – so prevalent throughout 2013 and 2014 – is over.

Another 2000 or 2007-like Top?

Does this breakdown also foreshadow another bear market, like it did in 2000 and 2007.

Context may be key here. The 2000 and 2007 market tops were also preceded by an even more important sell signal (more about this signal in a moment). This signal hasn’t triggered yet convincingly.

Furthermore, a close-up look at the XLY:XLP ratio since 2008 shows two prior trend line breaks (2012 and 2013, red circles) that turn out to be false signals. Unlike the 2001 – 2007 move, the post 2009 rally has been quite choppy, testing and breaking support more frequently.

The XLY:XLP ratio by itself is telling us that there is potential for further losses, but as the 2012 and 2013 breakdown reversals show, any correction may hit rock bottom without notice.

Looking at the ‘Big Guns”

As mentioned above, another indicator that not only foreshadowed the 2000 and 2007 market tops, but also predicted that every correction since 2009 would lead to new highs, has not yet given a convincing sell signal.

The indicator is probably the most valuable gauge for any investor at this moment.

It is discussed in detail here: 3 Strike Wall Street Law – QE Bull Market Only One Strike away From Knock Out

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.

Bearish Financial Sector Divergence Stokes 2007 Crash Memory

Since their inception, the SPDR S&P 500 ETF has almost always confirmed new highs of its cousin, the Select Sector Financial ETF. The only time it didn’t was in 2007 … and today. Here’s what makes this potential repeat intriguing.

For all the Whac-a-Mole bears who’ve been getting clobbered by the omnipresent bull market mallet, there’s finally a faint ray of hope flickering out of the same black hole that caused the last financial meltdown – the financial sector.

True, the Financial Select Sector SPDR ETF (NYSEArca: XLF) is humming higher, but the SPDR S&P 500 Bank ETF (NYSEArca: KBE) is not.

To be exact, the KBE bank ETF is trading 6.5% below its March high while the XLF financial ETF has already edged out new recovery highs. That’s unusual.

The chart below shows that since its inception, KBE has confirmed every significant new XLF high (dashed gray lines). Only two exceptions (dashed red lines) created a bearish divergence:

  • May 2007
  • August 2014

Although we don’t need the aid of a chart to remind us of what happened post May 2007, the chart tells us anyway.

Obviously, it would be premature to bunker up and batten down the hatches based on a sample size of one.

Even if the 2007 scenario is playing out again, it’s too early to pencil in a market crash in your 2014 trading calendar. Why?

  1. There’s a grace period between the XLF high and the final S&P 500 (NYSEArca: SPY) high. In 2007, the S&P 500 rally continued five months after XLF topped and the market didn’t enter free fall territory until a year after XLFs all-time high.
  2. XLF just saw a technical breakout. This looks bullish on the chart until proven otherwise. However, the breakout mimics a prior pattern that failed (see “XLF Breaks above Resistance to New 6-year High” for more details).

A small detail many have already forgotten is that the S&P 500 dropped nearly 12% in July/August 2007 just before shooting to its final October hurray.

A similar pullback now would certainly make this financial sector divergence even more intriguing.

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.