The market can be divided into nine sectors using the S&P Sector SPDRs and the Rydex Equal-weight Sector ETFs. These sectors can be subsequently divided into three groups: offensive, defensive and other. Technology, finance, consumer discretionary and industrials make up the offensive group, which is key to a healthy bull market. Healthcare, consumer staples and utilities make up the defensive group, which typically outperforms when the market is in risk-off mode. The energy and materials sectors represent the "other" group. In a bull market, which we are in, I am most concerned with the performance of the offensive sectors. Further insight can be gained by looking at performance for the market-cap weighted SPDRs and the equal-weight Rydex ETFs (hat tip J.A.). The SPDRs, of course, tell us what is happening with large-caps, while the equal-weight ETFs reflect the performance of small and mid-caps.
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The CandleGlance chart above shows the four offensive sector SPDRs and their equal-weight counter parts. I also added the S&P 500 SPDR (SPY) and Equal-Weight S&P 500 ETF (RSP) for good measure. First, the broader market is in good shape because SPY and RSP recorded new highs, although SPY appears to be struggling to hold this high. Second, the consumer discretionary sector was lagging at the beginning of the month, but surged in February and the Equal-Weight Consumer Discretionary ETF (RCD) hit a new high. This is positive. Third. The technology sector ETFs both hit new highs and this sector is leading. Note that XLK formed a rather tight consolidation the last two weeks and chartists should watch this support level closely. Fourth, the finance is lagging because XLF remains below its January high and the RYF has yet to forge a new high. Both remain in upswings, but chartists should watch support from the late February lows for signs of a weakness. And finally, the industrials sector is challenging its prior highs, but has yet to forge new highs. Overall, we have five ETFs with new highs, three ETFs at their highs and two below their highs. It is a bit of a mixed picture. Let's see if the strong can hold their highs and the others can confirm with new highs of their own. Check out this mailbag article for 14 essential CandleGlance groups.
Good weekend and good trading!
Arthur Hill CMT