
Watch These Sector ETFs Now as Big Banks Report Earnings
Earnings from major regional banks kick off the financial sector's second-quarter reports this week.
The KBW regional banking index is in bear market territory, but the financial sector exchange-traded fund is slightly less bad-off and is in correction territory. The KBW index consists of 24 of the country's biggest banks, including the "too big to fail" money center banks. While this portion of the finance sector is 20.3% below its multiyear high, the financial sector ETF, which has 92 components, is 10.5% below its multiyear high.
Four of the five biggest banks based upon total assets, as measured by the FDIC, report quarterly earnings this week. The reports are kicked off by the biggest of the big, JPMorgan Chase (JPM) - Get Report , before the opening bell on Thursday.
There are several problematic factors in analyzing bank earnings. The effect of Brexit did not become a large factor until June 23. Tumbling U.S. Treasury yields are squeezing net interest margins even more. Loans to oil and gas exploration companies based upon $80-a-barrel oil have forced banks to increase reserves for losses for the first time since the Great Credit Crunch ended. The notional amount of derivatives has been on the rise, with hidden time bombs ticking.
Still, the big banks have huge balance sheets.
In my opinion, you cannot have a bull market for stocks with a bear market in the major U.S. banks.
Seven of 10 sector ETFs now have positive weekly charts: industrials, consumer discretionary, consumer staples, health care, technology and transports. Utilities, by far the best-performing sector, is overbought.
That leaves three sector ETFs with neutral weekly charts: materials, energy and finance. For the energy sector, beware that Nymex crude oil declined overnight and is approaching my annual pivot of $44.07 per barrel.
Here's this week's scorecard for the 10 exchange-traded funds that represent each of the sectors of the S&P 500. The charts that follow are courtesy of MetaStock Xenith.
The weekly chart for the Materials Select Sector SPDR Fund (XLB) - Get Report has been upgraded to neutral from negative, with the ETF above its key weekly moving average of $46.62 and above its 200-week simple moving average of $44.56. The weekly momentum reading ended last week at 63.18, down from 68.82 on July 1.
Investors looking to buy the materials ETF should do so on weakness to $43.89 and $42.84, which are key levels on technical charts until the end of July and September, respectively. Beware that the downside risk is to $35.37 by the end of 2016.
Investors looking to reduce holdings should consider selling strength to $47.34, which is a key level on technical charts until the end of this week.
The weekly chart for the Industrial Select Sector SPDR Fund (XLI) - Get Report has been upgraded to positive from neutral with the ETF above its key weekly moving average of $55.89 and above its 200-week simple moving average of $50.16. The weekly momentum reading rose to 56.61 this week, up from 54.97 on July 1.
Investors looking to buy the industrial ETF should do so on weakness to $44.71 and $43.64, which are key levels on technical charts until the end of 2016.
Key levels of $54.82 and $54.49 were recently crossed and should be magnets until then end of September and the end of July, respectively.
Investors looking to reduce holdings should do so on strength to $58.23, which is the ETF's 52-week high.
The weekly chart for the Consumer Discretionary Select Sector SPDR Fund (XLY) - Get Report has been upgraded to positive from neutral, with the ETF above its key weekly moving average of $78.64 and above its 200-week simple moving average of $66.64. The weekly momentum reading rose to 50.54, up from 46.37 on July 1.
Investors looking to buy the consumer discretionary ETF should do so on weakness to $74.84 and $71.86, which are key levels on technical charts until the end of July and the end of 2016, respectively.
Investors looking to reduce holdings should consider selling strength to $84.00, which is a key level on technical charts until the end of September.
The weekly chart for the Consumer Staples Select Sector SPDR Fund (XLP) - Get Report has been upgraded to positive from neutral, with the ETF above its key weekly moving average of $53.93 and above its 200-week simple moving average of $44.98. The weekly momentum reading rose to 77.02 this week, up from 74.36 on July 1.
Investors looking to buy the consumer staples ETF should do so on weakness to $46.64, which is a key level on technical charts until the end of 2016.
The $54.54 and $55.60 levels should be magnets until the end of July and until the end of September, respectively.
Investors looking to reduce holdings should consider selling strength to $58.35, which is a key level on technical charts until the end of 2016.
The weekly chart for the Energy Select Sector SPDR Fund (XLE) - Get Report remains neutral, with the ETF above its key weekly moving average of $66.84, and well below its 200-week simple moving average of $78.02. The weekly momentum reading fell to 72.35 last week, down from 72.73 on July 1.
Investors looking to buy the energy ETF should do so on weakness to $59.95 and $54.40, which are key levels on technical charts until the end of July and the end of 2016, respectively.
Investors looking to reduce holdings should consider selling strength to $68.74, which is a key level on technical charts until the end of this week.
The weekly chart for the Financial Select Sector SPDR Fund (XLF) - Get Report has been upgraded to neutral from negative, with the ETF above its key weekly moving average of $22.85 and above its 200-week simple moving average of $21.69. The weekly momentum reading ended last week at 49.19, down from 52.66 on July 1.
Investors looking to buy the finance ETF should do so on weakness to $21.80, which is a key level on technical charts until the end of July.
Investors looking to reduce holdings should consider selling strength to $24.17, which is a key level on technical charts until the end of September.
The weekly chart for the Health Care Select Sector SPDR Fund (XLV) - Get Report has been upgraded to positive from neutral, with the ETF above its key weekly moving average of $71.21 and above its 200-week simple moving average of $60.34. The weekly momentum reading ended last week at 65.84, up from 64.25 on July 1.
Investors looking to buy the health care ETF should do so on weakness to $68.25 and $60.59, which are key levels on technical charts until the end of July and the end of 2016, respectively.
Investors looking to reduce holdings should consider selling strength to $78.87, which is a key level on technical charts until the end of September.
The weekly chart for the Utilities Select Sector SPDR Fund (XLU) - Get Report remains positive but overbought, with the ETF above its key weekly moving average of $50.69 and well above its 200-week simple moving average of $41.97. The weekly momentum reading rose to 90.09 last week, up from 88.37 on July 1, becoming more overbought above the 80.00 threshold.
Investors looking to buy the utilities ETF should do so on weakness to $48.26, which is a key level on technical charts until the end of September.
The levels of $51.79 and $50.05 should be magnets for July and the remainder of 2016, respectively.
The weekly chart for the Technology Select Sector SPDR Fund (XLK) - Get Report has been upgraded to positive from neutral, with the ETF above its key weekly moving average of $43.36 and above its 200-week simple moving average of $37.41. The weekly momentum reading rose to 54.09 last week from 53.31 on July 1.
Investors looking to buy the technology ETF should do so on weakness to $35.69, which is a key level on technical charts until the end of 2016.
The $42.22 level should be a magnet through July.
Investors looking to reduce holdings should consider selling strength to $45.54 and $48.13, which are key levels on technical charts until the end of September and the end of 2016, respectively.
The weekly chart for the iShares Transportation Average ETF (IYT) - Get Report has been upgraded to positive from negative, with the ETF above its key weekly moving average of $136.94 and above its 200-week simple moving average of $132.92. The weekly momentum reading rose to 34.65 this week, up from 33.90 on July 1.
Investors looking to buy the transportation ETF should do so on weakness to $126.82 and $123.82, which are key levels on technical charts until the end of July and the end of 2016, respectively.
The $136.24 level should remain a magnet through the end of the year.
Investors looking to reduce holdings should consider selling strength to $142.30, which is a key level on technical charts until the end of September.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.




















