BHT identifies meaningful trends and important supply and demand levels in the financial markets. An understanding of these dynamics will add Alpha to any investment strategy. The following are important factors to consider in the S&P 500 Economic Sectors:
The S&P 500 became overbought after gapping up early last week and as expected it ran into resistance around the 2,400 level. Friday’s action was negative because the market opened at its high for the day and closed at its lows. This probably has short-term Bearish implications. There is resistance at the 2,400 level because it is important psychologically and it will probably be resistance again when it trades back to that level. The popularity of ETFs causes there to be support and resistance at round levels. This is psychological and cannot be explained by traditional fundamental analysis.
Technology - The XLKs spent two months trading sideways between $53.50 and $52.50. They have been trending higher since breaking the resistance at $53.50 early last week. There should be support at this level if there is some profit-taking or consolidation. Longer-term, if they head lower there may be support around the $48 level because it was the top of the range from the middle of September through the end of October.
Financials - The XLFs gapped up early last week after breaking the downtrend that began at the end of March. They became overbought and reversed after running into resistance at the $24 level. This level was resistance in March as well. If they head lower there will probably be support at the $23 level. It was support in January and March, and also earlier this month.
Healthcare Short-term - The XLVs have been trending higher after breaking out of the range they were in from mid-March through mid-April. There will probably be resistance around $76 again because it was the top in March and last August. Longer-term, if they head lower there will probably be support around $72 because it was the top in November and January.
Consumer Staples - The XLPs have been consolidating around $55 over the past two months. If they rally they may run into some resistance around the $56 level again because this is where they hit resistance and rolled over last July. They also hit resistance there on April 26th.
Industrials - The XLIs are consolidating after becoming overbought and testing resistance at the all-time highs around $67. This level was the top on March 1st. Longer-term, there is support around $64 because it was resistance in December and January and support in March and April.
Energy – The XLEs sold off after failing at resistance around the important $71 level. This level was support in February and resistance from last August through last October. They continue to consolidate and test support around $68. This level was support in early November and again in March. If it breaks there could be a meaningful lower.
Utilities - The XLUs have been consolidating between $51 and $52 since the end of February. The upper end of the range is being tested. It isn’t surprising that there is resistance around $52 because it was the top last July.
Consumer Discretionary - The XLYs have become overbought after breaking out of their two-month range and going parabolic. They are up over +4% in just two weeks. They are now consolidating around the $90 level.
Materials - The XLBs gapped up and have become overbought after consolidating around the $52 level since January. As expected there is resistance around these levels because they were the all-time high in early 2015. $53 was the top of the recent range so there will probably be short-term support there.