1/ Communication and Technology May Underperform |
2/ Consumer Staples May Take a Breather |
3/ Risk-On Environment Continues; Discretionary May Relatively Outperform |
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Communication and Technology May Underperform |
Courtesy of StockCharts.com |
When SPDR Sector ETFs are benchmarked against the broader S&P 500 Index (SPY), it appears that the Communication Services ETF (XLC) has rolled inside the weakening quadrant. The Energy space represented by XLE also languishes inside the weakening quadrant. Isolated moves apart, these two groups may relatively underperform the broader markets.’ While Technology (XLK) and Financials (XLF) are inside the leading quadrant, a good improvement in relative momentum is also seen in the Consumer Discretionary (XLY) and the Industrials (XLI) space. Utilities (XLU), Real Estate (XLRE), and Consumer Staples (XLP) also stay firm inside the improving quadrant. |
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Financial market research from professionals at the forefront of technical analysis innovation. |
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Consumer Staples May Take a Breather |
Courtesy of StockCharts.com |
Consumer Staples (XLP) has faced resistance in the 74.60 – 76.70 area multiple times over the past year and a half. It has again faced resistance in this zone, and the decline pushed the ETF to find support at the 200-week MA. On the other hand, the Consumer Discretionary (XLY) remains much stronger from a technical perspective. Although not exactly classical, XLY has formed an inverse Head & Shoulders pattern on the weekly chart. This can prove much more potent as it has occurred after a decline. We can see the levels of 188 and 207 being tested over the coming weeks. |
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Risk-On Environment Continues; Discretionary May Relatively Outperform |
Courtesy of StockCharts.com |
Risk-on environment exists when risker and high beta assets are preferred over the less risky and defensive assets. The Relative Strength Line (RS Line), when the Consumer Discretionary ETF (XLY) is compared against Consumer Staples (XLP), has formed a new high and stays in a firmly rising trajectory. Consumer Discretionary generally outperforms staples and other defensive pockets during the risk-on structure of the markets. |
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Courtesy of StockCharts.com |
The Industrial Sector ETF (XLI) and Technology Sector ETF (XLK) look good on the chart individually despite being very differently placed on the RRG. XLI is placed inside the lagging quadrant but it is seen sharply improving its relative momentum against the broader S&P 500 Index. It is presently at its high point. The weekly MACD has shown a positive crossover. Some consolidation may not be ruled out at current levels but XLI is nicely placed to post incremental gains over the coming weeks. The Technology Sector ETF (XLK) has also broken out from a minor falling channel after encountering a classical double top resistance. XLK now trades at its high point and keeps the underlying primary uptrend intact. |
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Foram Chheda, CMT is a Technical Research Analyst anShe also serves as a volunteer on the CMT Association’s membership committee.d founder of chartanalytics.co.in. Foram frequently appears on CNBC Bajar, a part of the regional network of CNBC, the financial media group having one of the largest footprints across India. Foram is also seen regularly on ET Markets LIVE streaming where she shares her views on the Equity Markets. |
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