There's No Move Higher Without the High-Beta Sectors

Since Jan. 22, the S&P 500 (SPX) has been forming a symmetrical triangle with a trend in overall volume that is declining.

S&P 500 (SPX)

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This is a classic pattern in which both bulls and bears appear to be losing conviction as the pattern approaches its apex. Everyone's waiting to see what "the other guy" is going to do, and which way the triangle is going to break.

Once the triangle does break, the theory goes that the move away from the triangle should be about the magnitude of the height of the triangle at its inception. The height of this triangle was about 150 SPX points on Jan. 23. So, if the triangle breaks to the upside -- and if horizontal resistance in the 1396-1407 area is penetrated -- then a shot up toward 1500 is technically possible.

On the other hand, if the triangle breaks to the downside, then a break below the January lows would project a move down toward 1200.

The Sectors Have Their Say

One of the factors internal to the market that I look at every week is the relative strength of the 10 SPX sector ETFs:

Basic Materials Sector Select SPDR (XLB - commentary - Cramer's Take)

Energy Sector Select SPDR (XLE - commentary - Cramer's Take)

Financials Sector Select SPDR (XLF - commentary - Cramer's Take)

Industrials Sector Select SPDR (XLI - commentary - Cramer's Take)

Technology Sector Select SPDR (XLK - commentary - Cramer's Take)

Consumer Staples Sector Select SPDR (XLP - commentary - Cramer's Take)

Utilities Sector Select SPDR (XLU - commentary - Cramer's Take)

Health Care Sector Select SPDR (XLV - commentary - Cramer's Take)

Consumer Discretionary Sector Select SPDR (XLB - commentary - Cramer's Take)

Telecom Sector HOLDR (TTH - commentary - Cramer's Take) (This is a slightly different animal than the other ETFs, but it's close enough for government work.)

In order to check whether the market is essentially feeling defensive or aggressive (speculative), I like to see whether the higher-beta sector ETFS are performing better or worse than the lower-beta ETFs. (Beta is a measure of volatility relative to the market. By definition the SPX has a beta of one. A stock that's more volatile than the SPX has a beta greater than one. A stock that's less volatile than the SPX has a beta less than one.)

My thinking is that when high-beta sectors are performing better than the SPX, a sustained rally is possible. And when low-beta sectors are performing better than the SPX, rallies are less likely to be sustained.

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At the time of publication, Oliensis had no positions in the stocks mentioned, although positions may change at any time.

Adam Oliensis is president of Dog Dreams Unlimited, a guaranteed introducing futures brokerage, and editor of the trading service The Agile Trader. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Oliensis appreciates your feedback; click here to send him an email.