1/ Communication and Technology May Underperform
2/ Consumer Staples May Take a Breather
3/ Risk-On Environment Continues; Discretionary May Relatively Outperform
4/ What Else Looks Good?
Investopedia is partnering with CMT Association on this newsletter. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services.
1/Communication and Technology May Underperform
Courtesy of StockCharts.com
When SPDR Sector ETFs are benchmarked against the broader S&P 500 Index (SPY), it appears that the Communication Services ETF (XLC) has rolled inside the weakening quadrant. The Energy space represented by XLE also languishes inside the weakening quadrant. Isolated moves apart, these two groups may relatively underperform the broader markets.’
While Technology (XLK) and Financials (XLF) are inside the leading quadrant, a good improvement in relative momentum is also seen in the Consumer Discretionary (XLY) and the Industrials (XLI) space. Utilities (XLU), Real Estate (XLRE), and Consumer Staples (XLP) also stay firm inside the improving quadrant.
2/ Consumer Staples May Take a Breather
Courtesy of StockCharts.com
Consumer Staples (XLP) has faced resistance in the 74.60 – 76.70 area multiple times over the past year and a half. It has again faced resistance in this zone, and the decline pushed the ETF to find support at the 200-week MA.
On the other hand, the Consumer Discretionary (XLY) remains much stronger from a technical perspective. Although not exactly classical, XLY has formed an inverse Head & Shoulders pattern on the weekly chart. This can prove much more potent as it has occurred after a decline. We can see the levels of 188 and 207 being tested over the coming weeks.
3/ Risk-On Environment Continues; Discretionary May Relatively Outperform
Courtesy of StockCharts.com
Risk-on environment exists when risker and high beta assets are preferred over the less risky and defensive assets. The Relative Strength Line (RS Line), when the Consumer Discretionary ETF (XLY) is compared against Consumer Staples (XLP), has formed a new high and stays in a firmly rising trajectory. Consumer Discretionary generally outperforms staples and other defensive pockets during the risk-on structure of the markets.
4/ What Else Looks Good?
Courtesy of StockCharts.com
The Industrial Sector ETF (XLI) and Technology Sector ETF (XLK) look good on the chart individually despite being very differently placed on the RRG.
XLI is placed inside the lagging quadrant but it is seen sharply improving its relative momentum against the broader S&P 500 Index. It is presently at its high point.
The weekly MACD has shown a positive crossover. Some consolidation may not be ruled out at current levels but XLI is nicely placed to post incremental gains over the coming weeks. The Technology Sector ETF (XLK) has also broken out from a minor falling channel after encountering a classical double top resistance. XLK now trades at its high point and keeps the underlying primary uptrend intact.
—
Originally posted 12th December 2023
Disclosure: Investopedia
Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: ETFs
Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Join The Conversation
If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.