Join        Login             Stock Quote

Charting The Four Sector Etfs Above Their 2008 High

 January 15, 2013 01:28 PM

As we turn the corner into 2013, there are four main AMEX Sector SPDR ETFs that have exceeded and trade well above their 2008 "Bull Market" high.

Two ETFs are in the "Offensive" Sector while the other two are in the "Defensive" Sector, which makes an interesting situation.

Let's take a quick overview of these four ETFs and assess what this suggests about the current market.

XLY Consumer Discretionary (Offensive):

XLK Technology (Offensive):

[Related -On Being A Forced Seller in a Panic]

XLP Consumer Staples (Defensive):

XLV Health Care:

While these are the four major sector ETFs that have broken above their 2008 high, we also must note that the following ETFs have broken their 2012 high:

[Related -ECB's Quantitative Easing - QuitE Wrong]

XLF Financials

XLI Industrials

XLB Materials

This means that the following Sector ETFs have NEITHER broken their 2012 recent high or 2008 ‘all time' high:

XLU Utilities

XLE Energy

What does this mean for the broader market?

When assessing Sector Performance, it's best to classify these nine major sectors into "Risk On" or "Risk Off" sectors.

Strength (money flow/relative strength) into Risk-On sectors (Discretionary, Financials, Industrials, Materials, Energy, and Technology) suggests broader market strength and argues for bullish future price action (generally safe to invest).

However, strength into Risk-Off or Defensive Sectors (Health Care, Utilities, Consumer Staples) suggests that market participants are cautious about the future and are pulling risk from the high-beta sectors which suggests future weakness for the broader market (at least in the short-term).

It's bullish to see strength in Technology and Consumer Discretionary Sectors but puzzling to see similar strength (at least on the longer term chart) in Defensive Staples and Health Care.

It suggests – as may be commonly assumed – that investors continue to be cautious and somewhat distrusting of the broader Bull Market that has occurred from the March 2009 low.

When looking for swing trades or short-term plays, it helps to concentrate your attention in leading sectors (those that are currently outperforming the S&P 500 Index).

The general thesis is that in a rising market, the "offensive" sectors will outperform the "defensive/safe" sectors and – by proxy – should outperform the S&P 500.

Carrying the thought further, leading stocks (be it through relative strength or fundamentally) in leading sectors should offer opportunities for additional out-performance relative to the S&P 500.

Hedging strategies may also develop using sector analysis (long strong stocks in strong sectors; short weak stocks in weak sectors) but that's a topic for much more discussion.

For now, we'll just highlight the price performance of the last few years in these main sector ETFs and note the unusual strength in these four ETFs that have broken above their 2008 high.

It's easy to miss these factors if we simply chart on a Daily Chart for very short term plays so be sure to look to the higher timeframe as in this example.

iOnTheMarket Premium


Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageOn Being A Forced Seller in a Panic

No one wants to be a forced seller in a panic. So how does anyone get into that situation?  Two things: bad read on...

article imageECB's Quantitative Easing - QuitE Wrong

The eurozone has been doing fine without the ECB’s read on...

article imageCan You Invest Better Than Warren Buffett

Warren Buffett's investing strategy is simple: find companies worth investing in read on...

article imageMild Rebound In Housing Market

Expectations for a snapback in home construction from the winter lull were dampened somewhat in the latest read on...

Popular Articles

Daily Sector Scan
Partner Center

Related Articles:

Can You Invest Better Than Warren Buffett
More Articles on: Index

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.