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Can Strong Sectors Weather The Storm?

Posted by on Nov 18, 2015

Can Strong Sectors Weather The Storm?

After a rough week for the stock market the horrible events in Paris have put investors even more on edge.  So far there has not been any heavy selling in the Euro zone markets though both the Japanese and Hong Kong markets were down over 1%. The S&P futures are down 3 points in pre-market trading.

The rapid reversal last week did cause technical damage that suggests the decline can go further. My comparison with the correction in 2011 (Will Stocks Correct Like 2011?) suggests the market may stay weak through the Thanksgiving day holiday.

The technical readings does suggest we will see a powerful rebound this week but it is likely to be followed by further selling. One question for investors is whether the material and industrial sectors, which led the market from the October lows, will emerge as the best sectors once the current decline is over.

The Material Sector Select SPDR (XLB) is still us 14.3% from the October lows which is much better than the current 8.3% gain in the Spyder Trust (SPY). The Industrial Sector Select  SPDR (XLI) is also doing better than the SPY as it is up 9.3%.


The Material Sector Select SPDR (XLB) has an expense ratio of 0.15% which has 28 holdings and 65.7% in the top ten holdings which include Dupont (11.5%) , Dow Chemical (11.2%) and Monsanto (7.8%).

– The weekly chart shows that a doji was formed two weeks ago and the close on Friday below the prior week low triggered a low close doji sell signal.

– The quarterly pivot stands at $42.46 with the weekly starc- band at $40.53.

-There is resistance now at $46 with the weekly starc+ band at $48.86

-XLB was up 1.2% on Friday compared to a 1.1% loss in the SPY.

-The weekly relative performance is one of my favorite methods for trading ETFs and the RS analysis on XLB appears to have bottomed.

– A move in the RS line above the downtrend line a, would be even more positive.

– The weekly on-balance volume (OBV) formed a positive divergence, line b, at the recent lows.

– The OBV subsequently moved to new highs for the year and is well above its rising WMA.

-The daily analysis (not shown) is still positive for XLB.

Industrials Sector Select  SPDR (XLI) also has an expense ratio of 0.15% with a total of 66 holdings. There is 48% in the top ten holdings which includes General Electric (12%), 3M (5.3%) and Boeing (5%).

-XLI closed last week just above the 20 week EMA at $53.21 with the quarterly pivot and more important support at $50.23. The weekly starc- band is at $49.69.

-The next resistance is at $55.50 and the weekly downtrend, line c.

-The weekly RS line shows a solid uptrend, line d, from the July lows and it rose sharply last week.

-This is a sign that XLI is a legitimate market leading sector ETF

-The weekly OBV dropped back below its WMA last week and has good support now at line e.

– The daily OBV on XLI (not shown) turned negative Monday and still looks corrective.

What to do?  I will be looking for the daily studies to give positive signals ideally closer to the quarterly pivot where the risk can be well controlled.  Based on Friday’s close in XLB it may not see a deeper correction but could just form a trading range while the overall market corrects.