Sector Buy/Sell Review: 04-02-19

Each week we produce a chart book of the S&P 500 sectors to review where money is flowing within the market as whole. This helps refine not only decision making about what to own and when, but what sectors to overweight or underweight to achieve better performance.

HOW TO READ THE CHARTS

There are three primary components to each chart:

• The price chart is in orange
• The Over Bought/Over Sold indicator is in gray
• The Buy / Sell indicator is in blue.

When the gray indicator is at the TOP of the chart, there is typically more risk and less reward available at the current time. In other words, the best time to BUY is when the short-term condition is over-sold. Likewise when the buy/sell indicator is above the ZERO line investments have a tendency of working better than when below the zero line.

With this basic tutorial let’s get to the sector analysis.

Basic Materials

• Previous resistance from the last couple of weeks gave way yesterday with the broad market move higher.
• XLB has triggered a “buy” signal and finally clear resistance.
• While XLB is very overbought (top panel) the breakout clears the path for a move higher.
• Short-Term Positioning: Neutral
  • Last Week: Hold 1/2 position.
  • This Week: Add 1/2 position to take portfolio to model weight.
  • Stop-loss moved up to $54.
• Long-Term Positioning: Bearish

Communications

• XLC broke above previous resistance and held that support. But now is testing another level of overhead resistance.
• Currently on a “buy” signal.
• Sector back to extreme overbought.
• Short-Term Positioning: Neutral
  • Last Week: Recommended to “hold” 1/2 position
  • This Week: Hold 1/2 position
  • Stop-loss moved up to $45
• Long-Term Positioning: Bearish

Energy

• XLE broke above the 200-dma and has retested that support and held.
• Sell-signal (bottom panel) has reversed to a “buy signal”
• Currently, XLE has reversed back up to extreme overbought short-term.
• Short-Term Positioning: Neutral
  • Last week: Hold 1/2 position.
  • This week: Hold and wait for a pullback to support, or a break out, to add.
  • Stop-loss moved up to $64
• Long-Term Positioning: Bearish

Financials

• XLF failed at resistance but did hold critical support and bounced yesterday. As I noted last week, it was incredibly important for Financials to bounce and they did.
• While a “buy” signal has been triggered (bottom panel) the risk of a further correction has risen.
• XLF has reversed from oversold but is not yet overbought.
• Short-Term Positioning: Neutral
  • Last week: Recommended “hold” 1/2 position
  • This week: Hold 1/2 position, add on a breakout above $27.
  • Stop-loss moved up to $25.00
• Long-Term Positioning: Bearish

Industrials

• We noted previously that XLI had rallied sharply on hopes of a resolution on trade. However, whatever deal is struck, it has likely already been priced in.
• Buy signal in lower panel is very extended and starting to be reversed. However, the rally on Monday sent industrials screaming back to previous resistance. It is important for industrials to rally further tomorrow.
• XLI has completely reversed back to overbought as well.
• Short-Term Positioning: Bullish
  • Last week: Recommended “hold” 1/2 position
  • This week: Rebalance holdings. Hold 1/2 position, we missed the opportunity to add to our position previously. Add on a breakout above resistance that holds.
  • Stop-loss moved up to $72
• Long-Term Positioning: Neutral

Technology

• Currently XLK is on a “Buy” signal (bottom panel)
• Last week, the pullback to previous resistance was tested and XLK bounced back to recent highs on Monday. However, given the current extreme overbought conditions short-term, look for either a confirmed breakout to all-time highs or some further consolidation to add to holdings.
• Short-Term Positioning: Bullish
  • Last week: Recommended “hold” 1/2 position
  • This week: Hold 1/2 position, Add on breakout to new highs or pullback to $73
  • Stop-loss moved up to $70
• Long-Term Positioning: Neutral

Staples

• After breaking above the 400-dma, XLP broke above resistance and is now approaching all-time highs. The chase for defensive holdings remains concerning giving the current market backdrop.
• XLP has triggered a “buy” signal (lower panel)
• Currently still overbought, however the pullback to $53.50 hit our target to add exposure.
• Short-Term Positioning: Bullish
  • Last week: Holding full position.
  • This week: Hold position
  • Stop-loss moved up to $53
• Long-Term Positioning: Bullish

Real Estate

• “This is just nuts.” Real estate is now incredibly extended to the upside, along with utilities (XLU), as the “defensive” play in markets continues. Take profits and be careful. (This also goes for Staples and Technology as noted above.)
• After breaking out to all-time highs, it has just kept going…and going…and going. There has not been a decent risk/reward opportunity to increase exposure.
• Buy signal has reached extreme levels (bottom panel)
• Remains at more extreme overbought condition short-term. (top panel)
• Short-Term Positioning: Bullish
  • Last week: “Hold” 1/2 position
  • This week: Hold 1/2 position
  • Add on any weakness that works off over-bought condition or holds support at $34
  • Stop-loss adjusted to $33.50
• Long-Term Positioning: Bullish

Utilities

• As noted above – “This is crazy.”
• Long-term trend line remains intact but is so extended now, it will correct,.
• Previous support continues to hold.
• Buy signal has been registered.. (bottom panel)
• Back to extreme overbought conditions.
• Short-Term Positioning: Bullish
  • Last week: Rebalance holdings and continue to hold.
  • This week: If you didn’t take profits last week, do so now and hold target weight.
  • Stop-loss moved up to $54 and we are approaching our target of $60 from January
• Long-Term Positioning: Bullish

Health Care

• Sell-signal (bottom panel) is being reversed but has not yet flipped to a “buy signal.”
• The current overbought condition is being worked off slowly.
• XLV is holding support currently at the long-term uptrend line but is trapped below recent highs.
• Short-Term Positioning: Neutral
  • Last week: Hold current position.
  • This week: Hold current position.
  • Stop-loss remains at $89
• Long-Term Positioning: Neutral

Discretionary

• XLY broke through previous resistance and is now charging for all-time highs…which is interesting given the recent slow down in retail sales (somebody is paying attention to the data.)
• Previous support was successfully tested in recent sell off.
• A “buy” signal has been registered (lower panel)
• Extreme overbought conditions currently limit upside.
• The recent correction to $108 hit our target to add exposure.
• Short-Term Positioning: Neutral
  • Last week: Hold current position.
  • This week: Hold current position
  • Stop-loss moved up to $110
• Long-Term Positioning: Neutral

Transportation

• Previous support failed in recent sell-off.
• The rally on Monday, while nice, is still confined to the current downtrend line.
• Buy signal. (bottom panel) is close to reversing.
• The short-term oversold condition has almost been completely reversed.
• The “sell stop” was triggered on Monday.
• Short-Term Positioning: Neutral
  • Last week: Stopped out of remaining position.
  • This week: No position
• Long-Term Positioning: Bearish