Bet on Sector Momentum: Materials, Industrials, Financials, Transports

At the end of the week of Nov. 4, the technical charts for the 11 S&P 500 sector exchange-traded funds indicated that there were no safe havens. Then, came the presidential election -- and a President-Elect Donald J. Trump resulted in extreme sector volatility.

Last week began with stock market strength, as Secretary of State Hillary Clinton appeared to be a shoe-in to become Madam President. As the election map switched from blue to red, Dow futures plunged 800 points and S&P 500 futures declined by more than 100 points. Nasdaq 100 futures crashed by more than 200 points. Soon after the official stock market open on Nov. 9, it became crystal clear that stocks would not repeat the overnight plunge.

What was last week's volatile upside all about? Was it thoughtful buying of stocks and sectors expected to be helped by President Trump's programs? Or, was it simply the unwinding of positions by hedge funds, and those high-speed black-box automated trading systems that were programmed for the outcome that had an 85% chance of occurrence? Most likely it was automated trading and unwinding of positions.

Here's this week's scorecard for the 11 ETFs that represent each of the sectors of the S&P 500.

 

The SPDR Dow Jones REIT ETF (RWR) ended last week at $88.78, down 3.1% year to date. It traded as low as $86.90 on Nov. 10 as U.S. Treasury yields rose. The real estate ETF is in correction territory, 14.9% below its all-time intraday high of $104.34, set on July 29. As votes were being counted, this newest sector experienced a "death cross," in which its 50-day simple moving average fell below its 200-day simple moving average, indicating that lower prices were likely ahead.

The weekly chart for RWR is negative but overbought, with the ETF below its key weekly moving average of $92.61 and above its 200-week simple moving average of $85.55, last tested during the week of Feb. 12, when the average was $81.06. The weekly momentum reading declined to 13.63 last week, down from 16.75 on Nov. 4, falling further below the overbought threshold of 80.00.

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Investors looking to buy the REIT ETF should do so on weakness to $85.55, which is the 200-week simple moving average. Investors looking to reduce holdings should consider selling strength to $101.16, which is a key level on technical charts until the end of 2016.

The Materials Select Sector SPDR Fund (XLB) ended last week at $48.15, up 10.9% year to date. It traded as high as $49.06 on Nov. 10, shy of its Aug. 23 high of $49.57. This ETF is in bull market territory, 32.7% above its Jan. 20 low of $36.29.

The weekly chart for XLB has been upgraded to positive from negative, with the ETF above its key weekly moving average of $47.26 and above its 200-week simple moving average of $45.55, last tested during the week of July 1, when the average was $44.51. Note that the ETF held $46.14 on Nov. 4, which is the 61.8% Fibonacci retracement of the decline from the all-time intraday high of $52.22, set in February 2015, to the Jan. 20 low of $36.29. The weekly momentum reading rose to 34.10 last week, up from 32.03 on Nov. 4.

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Investors looking to buy the materials ETF should do so on weakness to $42.80, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should consider selling strength to $52.35 and $53.66, which are key levels on technical charts until the end of November and until the end of 2016, respectively.

The Industrial Select Sector SPDR Fund (XLI) ended last week at $61.05, up 15.2% year to date. It set its all-time intraday high of $61.07 on Nov. 11. This sector benefited from the notion that industrial companies will win big on infrastructure spending projects and the rebuilding of our military. This ETF is in bull market territory, 30.4% above its Jan. 20 low of $46.82.

The weekly chart for XLI has been upgraded to positive from negative, with the ETF above its key weekly moving average of $58.01 and above its 200-week simple moving average of $52.04, last tested during the week of Jan. 22 when the average was $47.92. The weekly momentum reading rose to 35.87, up from 32.16 on Nov. 4.

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Investors looking to buy the industrials ETF should do so on weakness to $57.42, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should do so on strength to $61.88, which is a key level on technical charts until the end of November. My next risky level is $68.26, in play until the end 2016.

The Consumer Discretionary Select Sector SPDR Fund (XLY) ended last week at $79.72, up just 2% year to date. It traded as high as $80.15 on Nov. 10. This sector was held back last week as its largest component, Amazon (AMZN) , slumped.

The weekly chart for XLY has been upgraded to neutral from negative, with the ETF above its key weekly moving average of $79.01 and well above its 200-week simple moving average of $69.62. The weekly momentum reading declined to 26.43 last week, down from 28.54 on Nov. 4.

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Investors looking to buy the consumer discretionary ETF should do so on weakness to $71.86, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should consider selling strength to $84.23, which is a key level on technical charts until the end of November.

The Consumer Staples Select Sector SPDR Fund (XLP) ended last week at $50.54, up just 0.1% year to date and nearly in correction territory, 9.8% below its July 14 all-time intraday high of $56.02. The stock ended the week of Nov. 4 under a "death cross," which favors downside risk, and the stock declined from an election day high of $52.85 to a low of $50.21 on Nov. 11.

The weekly chart for XLP remains negative but oversold, with the ETF below its key weekly moving average of $52.26 and well above its 200-week simple moving average of $46.59. The weekly momentum reading declined to 14.41 last week, down from 16.20 on Nov. 4, moving further below the oversold threshold of 20.00.

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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. Investors looking to reduce holdings should consider selling strength to $55.98, which is a key level on technical charts until the end of November.

The Energy Select Sector SPDR Fund (XLE) ended last week at $69.46, up 15.2% year to date and in bull market territory, 39.1% above its Jan. 20 low of $49.93.

The weekly chart for XLE has been upgraded to neutral from negative, with the ETF above its key weekly moving average of $69.19 but well below its 200-week simple moving average of $77.73. Note how the energy ETF has been trading back and forth around $69.64, which is the 38.2% Fibonacci retracement of the decline from its all-time intraday high of $101.52, set during the week of June 27, 2014, down to its Jan. 20 low of $49.93. The weekly momentum reading declined to 58.37 last week, down from 54.21 on Nov. 4.

Note that the Nymex crude oil futures contract ended last week with a negative weekly chart, on the basis that a pro-fossil-fuel energy policy from Trump should lower the price ceiling for crude oil. Oil ended last week below my annual pivot of $44.07.

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Investors looking to buy the energy ETF should do so on weakness to $65.93, which is the 200-day simple moving average. Investors looking to reduce holdings should consider selling strength to $78.52, which is a key level on technical charts until the end of 2016.

The Financial Select Sector SPDR Fund (XLF) ended last week at $21.67, up 12% year to date, and in bull market territory, 36.6% above its Feb. 11 low of $15.86.

The weekly chart for XLF has been upgraded to positive from neutral, with the ETF above its key weekly moving average of $19.55 and above its 200-week simple moving average of $18.20, last tested during the week of July 1, when the average was $17.58. Note the Fibonacci retracements of the crash from the May 2007 high of $30.98 to the March 2009 of $4.78. The financial ETF broke out above the 61.8% retracement of $20.97 on Nov. 10. The weekly momentum reading rose to 67.71 last week, up from 63.55 on Nov. 4.

Buyers beware! The FDIC will soon release its Quarterly Banking Profile for the third quarter, and concerns will remain. Also, note that future president Trump seems to favor a modern-day version of Glass-Steagall Law to break up the "too big to fail" money center banks. In addition, many features of the Dodd-Frank bank regulations may be repealed. This is not the environment that justifies chasing bank stocks. Just trade them.

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Investors looking to buy the finance ETF should do so on weakness to $19.55, which is a key level on technical charts until the end of 2016. The $21.31 level should be a magnet until the end of November. Investors looking to reduce holdings should consider selling strength to $23.51, which is a key level on technical charts until the end of 2016.

The Health Care Select Sector SPDR Fund (XLV) ended last week at $70.49, down 2.1% year to date. It is 12.5% above its Feb. 9 low of $62.68.

The weekly chart for XLV has been upgraded to neutral from negative, with the ETF above its key weekly moving average of $70.04 and above its 200-week simple moving average of $63.21. The weekly momentum reading ended last week at 15.87, up from 13.86 on Nov. 4, becoming less oversold vs. the threshold of 20.00.

The potential repeal and replace of Obamacare was a factor in the ETF rebound of 9.3% from $65.96 on Nov. 3 to the post-election high of $72.08 on Nov. 10.

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Investors looking to buy the health care ETF should do so on weakness to $60.59, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should consider selling strength to $74.97, which is a key level on technical charts until the end of November.

The Utilities Select Sector SPDR Fund (XLU) ended last week at $46.03, up 6.4% year to date. It is in correction territory, 13.2% below its July 6 high of $53.02.

The weekly chart for XLU remains neutral, with the ETF below its key weekly moving average of $48.07 and well above its 200-week simple moving average of $43.21. The ETF was under a "death cross" on election day and dropped from its 200-day simple moving average of $49.11 to as low as $45.61 on Nov. 10, which provided a warning. The weekly momentum reading ended last week at 23.58, vs. 23.56 on Nov. 4.

 

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Investors looking to buy the utilities ETF should do so on weakness to $43.21, which is the 200-week simple moving average. Investors looking to reduce holdings should consider selling strength to $51.19 and $51.46, which are key levels on technical charts until the end of 2016.

The Technology Select Sector SPDR Fund (XLK) ended last week at $46.73, up 9.1% year to date. It is in bull market territory, 22.9% above its Jan. 20 low of $38.03.

The weekly chart for XLK remains negative, with the ETF below its key weekly moving average of $46.97, and well above its 200-week simple moving average of $38.99. This ETF has been held back by weakness from its four largest components, Apple  (APPL) , Microsoft (MSFT) , Alphabet (GOOGL) and Facebook (FB) . The weekly momentum reading declined to 62.16 last week, down from 72.26 on Nov. 4.

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Investors looking to buy the technology ETF should do so on weakness to $44.62, which is the 200-day simple moving average. My annual value level lags at $35.69, with a pivot at $46.72 in play for the remainder of the year. Investors looking to reduce holdings should consider selling strength to $49.05, which is a key level on technical charts until the end of 2016.

The iShares Transportation Average ETF (IYT) ended last week at $154.36, up 14.6% year to date. It is in bull market territory, 34.3% above its Jan. 20 low of $114.91.

The weekly chart for IYT has been upgraded to positive from neutral, with the ETF above its key weekly moving average of $145.90 and above its 200-week simple moving average of $137.61. This ETF broke out above $147.61, which is the 61.8% Fibonacci retracement of the decline from the all-time intraday high of $167.80 set on Nov. 28, 2014, down to its Jan. 20 low of $114.91.

Strength in transports post-election has been fueled by the notion that trucks and trains may be carrying energy-related and infrastructure cargo, as the Trump Administration implements its promised programs. The weekly momentum reading ended last week at 76.83, up from 75.37 on Nov. 4.

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Investors looking to buy the transportation ETF should consider doing so on weakness to $139.62 and $136.24, which are key levels on technical charts until the end of 2016. The $151.34 level should be a magnet until the end of November. Investors looking to reduce holdings should do so on strength to $189.51, which is a key level on technical charts until the end of 2016.

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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