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 had a nice move up Friday after becoming oversold, but it is still in a downtrend. The action over the past month has been very choppy as the trading range became broader. This is usually a Bearish dynamic. If it does head lower again there will probably continue to be support around the 2,400 level because it was resistance in February, April, and May. The low trade on June 29th was 2,405 and the low trade on Thursday was 2,407. 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 are consolidating and testing support around the $54.75 level. This level was the low in mid-May and mid-June as well. If it breaks there will probably be support around the $53.50 level because it was the top of the range in February, March, and April. There have been three large distributions over the past two months…on May 17th, June 9th, and June 26th – 27th. These are typically Bearish dynamics and could mean that they will head lower.
Financials - The XLFs are testing resistance around $25. As expected, this level is resistance because it was the highs in early March. They traded between $23 and $24 from mid-March through mid-June. The $24 level was the broken to the upside, and there was short-term support there two weeks ago after some profit-taking. Longer-term, there will probably continue to be support around $23 because this clearly defined level was support in January, on March 27th, in the middle of April and in the middle of May. If this level breaks to the downside there could be a meaningful selloff.
Healthcare - The XLVs are trading near all-time highs. They are in a short-term downtrend and spent the last two weeks consolidating around the $79 level after becoming overbought. If there is some selling or profit-taking, there will probably be significant support around the $76 level because it was resistance last August, March, and again in early May.
Consumer Staples - The XLPs are testing support around the $54.50 level. This level was also support in March, April, and May. If it breaks there could be a large move lower.
Industrials - The XLIs are consolidating near all-time highs after breaking resistance around the $67 level on May 25th. This level was resistance because it was an all-time high in early March and the top in late April and most of May. Now it is a support level. Longer-term, there is support around $64 because it was resistance in December and January and support in March and April.
Energy Sector- The XLEs continue to test and may be breaking support around the $64.50 level. As expected, there was support at this level because the last four times they traded down to around $64.50, during last May, June, and August of 2016, and then again in early June, a rally followed.
Utilities - The XLUs are consolidating after breaking support around the $52 level. This level is support because it was the top from February through May as well as last year in June and July. It should now become a resistance level.
Consumer Discretionary - The XLYs are trending lower after making all-time highs around $92 in early June. As expected, they found support at the $88 level in May. This level was the top of the range in March and April and will probably be support once more if they get there again.
Materials - The XLBs gapped up through resistance around $54 and made an all-time high around $55 in mid-June. The $54 level was the top in late April. As expected, there has been some profit-taking and they have been consolidating around $54 over the past month.