Sector Buy/Sell Review: 06-25-19

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

• XLB back to extreme overbought and challenging resistance. A failure of a trade-deal from the G-20 meeting will likely pressure the sector lower if more tariffs ensue.
• XLB failed at initial resistance on Monday.
• Short-Term Positioning: Neutral
  • Last Week: Sell down positions to 1/2 weight and hold
  • This Week: Hold current positions with tighter stop-loss
  • Stop-loss moved up to $56
• Long-Term Positioning: Bearish

Communications

• XLC has mustered a moderate rally which has been less than inspiring.
• While on a buy signal, XLC is back to very overbought. If you are still long positions, take profits and reduce exposure.
• Short-Term Positioning: Neutral
  • Last Week: Maintain trading positions.
  • This Week: Hold trading positions, but take profits.
  • Hard Stop set at $47.50
• Long-Term Positioning: Bearish

Energy

• XLE has mustered a strong rally over the last few trading sessions as the sector rallied over Iran worries.
• Currently, XLE is running into the 200-dma, take profits and rebalance risk accordingly. If this level proves to be resistance a retest of recent lows is probable.
• The “sell-signal” remains intact for now but is trying to reverse. A break above the 200-dma would clear the way for a move higher, but wait for the break first.
• Short-Term Positioning: Neutral
  • Last week: Reduce exposure
  • This week: Hold current position, add to holding on a break above the 200-dma.
  • Stop-loss adjusted to $62
• Long-Term Positioning: Bearish

Financials

• XLF has rallied and is now testing, and struggling with. previous resistance.
• XLF remains on a “buy” signal currently but the oversold condition has almost been fully reversed.
• Short-Term Positioning: Neutral
  • Last week: Recommended “hold” 1/2 position
  • This week: Hold 1/2 position
  • Stop-loss moved up to $25.00
• Long-Term Positioning: Bearish

Industrials

• XLI has failed to rally to a new high, and the previous triple top remains formidable resistance.
• Our stop level has held for now and XLI is rallying back to overhead resistance.
• Much hangs in the balance for a trade-deal from the G-20. Failure of progress may result in a reversal of the recent gains. Take profits if needed.
• Short-Term Positioning: Neutral
  • Last week: Sell 1/2 position at current levels.
  • This week: Hold remaining 1/2 position.
  • Stop-loss moved up to $72
• Long-Term Positioning: Neutral

Technology

• XLK has reversed back to an overbought condition and is challenging the previous highs.
• XLK has been driven by the largest cap-weighted companies so it may pay to remain cautious for now.
• The buy signal remains intact, which is bullish, so remain long positions for now.
• Short-Term Positioning: Bullish
  • Last week: Hold 1/2 position
  • This week: Hold 1/2 position
  • Stop-loss moved up to $72.5
• Long-Term Positioning: Neutral

Staples

• Defensive positions continue to lead the charge in the most recent advance.
• XLP has registered new highs and is grossly extended.
• Take profits and rebalance risks but maintain holdings.
• The “buy” signal (lower panel) is still in place and is back to very extended. We continue to recommend taking some profits if you have not done so.
• XLP was oversold and we stated additional gains were likely. $56.50 was initial resistance which was taken out with new all-time highs.
• Short-Term Positioning: Bullish
  • Last week: Hold positions, take profits if needed.
  • This week: Hold positions, take profits if needed.
  • Profit stop-loss moved up to $57.50
• Long-Term Positioning: Bullish

Real Estate

• XLRE, like XLP, has broken out to all-time highs as “defense” continues to catch the majority of the rally.
• We previously recommended taking profits and rebalancing risk. That is still advisable.
• Buy signal is being reduced along but XLRE is back to overbought.
• We recently added to our XLRE position and are now carrying a full weight.
• Short-Term Positioning: Bullish
  • Last week: Holding full position.
  • This week: Hold position.
  • Stop-loss adjusted to $36.50
• Long-Term Positioning: Bullish

Utilities

• XLU, like XLRE and XLP above, continue to advance from the “defensive” shift in allocations.
• Long-term trend line remains intact and the recent test of that trend line with a break to new highs confirms the continuation of the bullish trend.
• Buy signal worked off some of the excess. (bottom panel) but the sector is back to overbought once again.
• Short-Term Positioning: Bullish
  • Last week: Hold overweight position
  • This week: Hold overweight position
  • Stop-loss moved up to $57.50.
• Long-Term Positioning: Bullish

Health Care

• Sell-signal (bottom panel) remains intact currently but previous support is holding and the sell signal is about to reverse to a buy signal.
• XLV performance improved markedly last week as another defensive position moves to the fore.
• XLV is back to overbought so $90 is now important support.
• Short-Term Positioning: Neutral
  • Last week: Hold current position (overweight)
  • This week: Hold current position (overweight)
  • Stop-loss set $86
• Long-Term Positioning: Neutral

Discretionary

• With AMZN and AAPL now considered discretionary stocks, it is not surprising to see XLY rise and fall with XLK and XLC as those two major stocks rallied last week and on Monday.
• The “buy” signal has been reduced and is holding up and XLY did break above previous resistance and is now challenging all-time highs.
• XLY was oversold and is now back to extreme overbought.
• Short-Term Positioning: Neutral
  • Last week: Hold 1/2 of position.
  • This week: Hold 1/2 position with stops in place.
  • Stop-loss adjusted to $107.50 after sell of 1/2 position.
• Long-Term Positioning: Neutral

Transportation

• XTN has continued to lag the overall market and continues to suggest there is “something wrong” economically.
• XTN has reversed its buy signal (bottom panel) and while the sector is bouncing off of an oversold condition, there is a lot going wrong.
• We noted last week to “look for a failed rally to $60 to sell into if you are still long positioning.”
• That failed rally occurred yesterday, sell and raise cash accordingly. .
• As we have been saying for several weeks, our “sell stop” was triggered previously. No real need to rush back into adding a new position. We will watch and see what happens.
• Short-Term Positioning: Neutral
  • Last week: No position
  • This week: No position
• Long-Term Positioning: Bearish