5 Sectors You Should Under-Weight Based on Their ETFs

The second half of 2015 has been extremely volatile, as the charts on these sectors show.
By Richard Suttmeier ,

The stock market has been rallying since the fourth quarter began, with gains following the Oct. 27-28 Federal Opening Market Committee meeting. The dynamics among the 10 sectors of the market show an eclectic mix of chart patterns that makes asset allocation decisions difficult to decide. All 10 sectors fell into correction or bear market territory before rallying in the fourth quarter.

Here are five to under-weight in your portfolio.

Using exchange-traded funds that track the sectors, here's how they've been doing.

Now we'll look at the specific daily charts for five sectors that should be cut back in your holdings.

The Industrial Select Sector SPDR Fund (XLI) - Get Report  , now at around $55, closed Wednesday at $54.79, up 9.8% so far in the fourth quarter and down 3.3% year to date. Here's the daily chart.


Courtesy of MetaStock Xenith

The horizontal lines are the Fibonacci retracement of the year's range from high to low. With this ETF trading above its 61.8% retracement of $54.17, the industrial sector gets an under-weight rating down from equal-weight. Below is the 50% retracement of $52.92.

Investors looking to buy XLI should place a good till canceled limit order to buy the ETF if it drops to $50.33, which is a key level on technical charts until the end of November.

Investors looking to reduce holdings should place a good until canceled limit order to sell the ETF if it rises to $59.82, which is a key level on technical charts until the end of 2015.

The Consumer Discretionary Select Sector SPDR Fund (XLY) - Get Report  , now at $81.44, closed Wednesday at $81.12, up 9.2% so far in the fourth quarter and up 12.4% year to date. Here's the daily chart.


Courtesy of MetaStock Xenith

This ETF set an all-time high of $81.87 on Wednesday then closed below Tuesday's low of $81.19, which technicians call a "key reversal" day. This warning is enough to justify an under-weight rating down from over-weight. The risk is to the 50-day and 200-day simple moving averages of $76.75 and $76.37, respectively. When making allocation decisions investors should view upward momentum as an opportunity to book profits.

Investors looking to buy XLY should place a good till canceled limit order to buy the ETF if it drops to $78.44, which is a key level on technical charts until the end of November.

Investors looking to reduce holdings should place a good until canceled limit order to sell the ETF if it rises to $81.03, which is a key level on technical charts until the end of 2015. This level has already been tested this week. A key level for this week was also tested at $81.51.

The Consumer Staples Select Sector SPDR Fund (XLP) - Get Report , at $49.72, closed Wednesday at $49.73, up 4.7% so far in the fourth quarter and up 2.6% year to date. Here's the daily chart.


Courtesy of MetaStock Xenith

This ETF set an all-time high of $51.13 on Oct. 23 with risk to its 50-day and 200-day simple moving averages of $48.37 and $48.93, respectively. This risk justifies an under-weight rating down from over-weight.

Investors looking to buy XLP should place a good till canceled limit order to buy the ETF if it drops to $44.06, which is a key level on technical charts until the end of 2015.

Investors looking to reduce holdings should place a good until canceled limit order to sell the ETF if it rises to $52.42, which is a key level on technical charts until the end of 2015.

The Health Care Select Sector SPDR Fund (XLV) - Get Report , at $72, closed Wednesday at $72.28, up 9.1% so far in the fourth quarter and up 5% year to date.


Courtesy of MetaStock Xenith

The horizontal lines are the Fibonacci Retracement of the 2015 high to the 2015 low ignoring the Aug. 24 out-of-bounds low of the flash crash. With this ETF trading just above its 61.8% retracement of $72.18 this sector gets an under-weight rating down from equal-weight.

Investors looking to buy XLV should place a good till canceled limit order to buy the ETF if it drops to $70.71, which is a key level on technical charts until the end of 2015.

Investors looking to reduce holdings should place a good until canceled limit order to sell the ETF if it rises to $79.72, which is a key level on technical charts until the end of 2015.

The Technology Select Sector SPDR Fund (XLK) - Get Report , at $44.60, closed Wednesday at $44.32, up 12.2% so far in the fourth quarter and up 7.2% year to date and set an all-time high of $44.44 on Wednesday.


Courtesy of MetaStock Xenith

This ETF has risk to its 50-day and 200-day simple moving averages of $41.15 and $41.98, respectively. When making allocation decisions investors should view upward momentum as an opportunity to book profits. This risk justifies an under-weight rating down from over-weight.

Investors looking to buy XLK should place a good till canceled limit order to buy the ETF if it drops to $41.00, which is a key level on technical charts until the end of November.

Investors looking to reduce holdings should place a good until canceled limit order to sell the ETF if it rises to $46.52, which is a key level on technical charts until the end of 2015.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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