Chart Advisor: The Good, the Bad, and the Rotating

By Vincent M. Randazzo, CMT

1/ The Good: Tech Still Leads, but Watch for Pullback

2/ The Bad: Healthcare Flatlining in an Otherwise Robust Market

3/ The Rotating: Discretionary Starting to Show Its Hand

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1/

XLK – Tech Still Leads, but Watch for Pullback

After years of near-uninterrupted dominance, mega-cap technology stocks continue to set the pace for the broader market. The Technology Select Sector SPDR Fund (XLK), an exchange-traded fund that tracks the technology sector, not only recently hit fresh all-time highs, but it’s also outperforming the already-strong S&P 500 Index by a widening margin.

The bottom panel of the chart tracks XLK’s relative strength versus the S&P 500 over rolling 3-month periods. That relative performance is not only positive but also accelerating, supporting the case for continued leadership. From a trend-following perspective, XLK remains one of the most attractive sectors. Strength tends to beget strength in these environments, though waiting for a pullback into support may offer a more favorable entry point for new positions.

But in the short term, caution may be warranted. As shown in the top panel, XLK now trades over 12% above its 200-day moving average (DMA)—a level that has historically coincided with short-term mean reversion or consolidation. Additionally, the fund recently broke above former resistance near the $240 level, which may now act as a support zone on any near-term weakness.

It’s not uncommon for fresh breakouts to be tested, particularly when enthusiasm begins to cool. A return to the breakout zone would not undermine the longer-term trend but may offer a more attractive risk-reward setup for new positions.

In short, while the longer-term momentum and leadership remain intact, the near-term picture suggests the potential for a breather. While the trend is your friend, respecting near-term overbought conditions can help improve entry points. For now, XLK continues to lead, and any pullback into support is more likely to attract buyers than to signal the start of underperformance.

2/

XLV – Healthcare Still Flatlining in an Otherwise Robust Market

While many U.S. sectors push toward new highs, healthcare remains firmly out of favor. The Healthcare Select Sector SPDR Fund (XLV), an exchange-traded fund (ETF) tracking major healthcare stocks, continues to underperform both in absolute and relative terms.

In the bottom panel of the chart, we track rolling 3-month relative strength versus the S&P 500 Index. Not only is the ratio trending lower, it’s also making new relative lows—evidence of persistent underperformance rather than temporary weakness. This isn’t a new development. Healthcare has been steadily lagging for months, and the directional momentum suggests the trend is likely to persist, at least in the intermediate term.

Looking at XLV’s price action in the top panel, the fund has been in a clear downtrend since its all-time high in September 2024. Adding to the bearish case, the slope of the 200-day moving average (200-DMA) has turned negative—a classic signal that long-term trend pressure is to the downside. That falling moving average now functions as dynamic resistance, especially as price nears horizontal resistance near $137, a level that has marked tops and bottoms for the fund multiple times over the past two years.

Until XLV can reclaim key moving averages and demonstrate improving relative strength, the path of least resistance remains lower. In an otherwise strong market, healthcare continues to struggle for direction and investor attention.

3/

XLY – Discretionary Starting to Show Its Hand

Identifying current leaders and laggards is essential, but spotting sectors on the verge of rotation can be even more valuable. The Consumer Discretionary Select Sector SPDR Fund (XLY), which tracks large-cap consumer discretionary, is beginning to show technical signals that point to a potential shift toward leadership.

As evidenced in the green rectangle in the bottom panel of our chart, compared to the S&P 500 Index, XLY has been able to hold its ground, with a longer-term tendency toward outperformance. Its heavily concentrated exposure to Amazon (AMZN) (~23%) and Tesla (TSLA) (~16%) makes it highly sensitive to the performance of those two names. As such, it tends to exhibit bursts of strong relative performance—like it did in mid-2023 and late 2024—but also periods of notable lag if either stock weakens. This concentration risk cuts both ways and should be a key consideration for investors.

From a price perspective, XLY recently broke above its multi-month downtrend and successfully tested its 200-day moving average, which continues to trend higher. This test came on modest volume and held cleanly—an encouraging sign that buyers are stepping in at trend support.

Although the fund is still below its late 2024 peak, the chart is showing signs of building upside momentum. A continued push above potential overhead supply in the near term could set the stage for another wave of relative strength. In a market hungry for leadership outside of technology, discretionary may be positioning itself as the next sector to watch.

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Originally posted 15th July 2025