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 broke out of its two-week range on Friday and is once again testing resistance around the 2,400 level. The last two times this resistance was tested, on March 1st and again on April 26th, the market was overbought. This time it isn’t. There is resistance at the 2,400 level because it is important psychologically. 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. Although they consolidated last week, they are still trending higher since breaking the resistance at $53.50 on April 24th. There should be support at this level if there is some profit-taking. 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 on April 24th after breaking the downtrend that began at the end of March. They became overbought and have consolidated and tested resistance at the $24 level since then. This level was resistance in late 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 are testing resistance around $76 after trending higher after breaking out of the range they were in from mid-March through mid-April. There is 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.
Healthcare Long-term - Longer-term, the XLVs could be forming a multi-year Bearish reversal formation. This is a very important and interesting dynamic. This sector rallied throughout the Obama Presidency. One can argue that this sector profited due to the Affordable Care Act. Now Mr. Trump is trying to repeal Obamacare and this could be why this sector is showing long-term bearish indications. The $64 level is very important because it was the bottom in September of 2015 and again in February of 2016.
Consumer Staples - The XLPs have been consolidating around $55 for almost three 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 have broken support around the $68 level. This level was support in early November and again in March as well and will probably be resistance if there is a rally. There will probably be support around the $64.50 level because it was clearly defined support during last May, June, and August.
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 are consolidating around the $90 level. They became overbought after breaking out of their two-month range and going parabolic. They were up over +4.5% in just two weeks.
Materials - The XLBs continue to consolidate around the $53 level after making a new all-time high on April 26th. They seem to be breaking the topside of their recent range. As expected there is resistance around these levels because they were the all-time highs in early 2015. Longer-term, $49 was the top of the range from the middle of July throughout the early part of September so there may be some support at that level if they trade down to there.