S&P 500 Sector SPDRs Preview - July 29th, 2018

Introduction & Summary

  • In financial markets, there are certain price levels that are more significant than others with regards to the amount of supply and demand that exists at them
  • In financial markets, prices are always doing one of three things.  They are either going up, going down, or staying the same
  • An understanding and awareness of these levels and trends will add Alpha to almost any investment strategy
  • I do not utilize many of the traditional Technical Analysis Techniques such as Gann Theory or Elliot Waves and believe they belong in the realm of Bigfoot and UFOs…fun to talk about but hardly credible
  • I utilize a process and methodology that has been developed over twenty years in order to identify these levels and trends.  My philosophy and method is based on experience, common sense, and logic.  I spent almost two decades trading illiquid securities and this background has given me the ability to recognize and identify these levels and trends

 

The following are important dynamics to consider in the S&P 500 Economic Sector SPDRs:

S&P 500 - The SPYs formed a reversal pattern over the past three days so expect support at the $280 level to be tested.  This level is important because it was the top in February, March, and mid-June.

Technology - The XLKs broke support around the $72.50 level, which was where the recent highs were in early June.  If they head lower the $71 level should provide some support because it was the bottom of the range in June and an all-time high in March.

Financials - The XLFs have trended higher since the beginning of the month.  They are now testing resistance around the $28.25 level.

Healthcare - The XLVs gapped up out of their recent range but they formed a reversal pattern and reverted.   If they head lower there will probably be support around the $86.50 level again.

Consumer Discretionary - The XLYs are consolidating around all-time highs after breaking their recent uptrend.

Industrials - The XLIs continue to uptrend but they are testing resistance around the $76.50 level.  That is where the three most recent highs were in April, May, and June.

Consumer Staples - The XLPs are testing resistance around the $53.50 level.  This level was resistance and the most recent high in April. 

Energy - The XLEs are trading in the middle of their recent range.  The recent highs have been around $78  and the recent lows have been at $74. 

Materials - The XLBs continue to consolidate between the $58 and $60 levels but they are testing the top of the recent range.

Utilities - The XLUs are consolidating around the $52 level after breaking their recent uptrend.  This level was the high in April.

S&P 500 – The SPYs made a reversal pattern over the past three days so expect support at the $280 level to be tested.  This level is important because it was the top in February, March, and mid-June.  If this level doesn’t hold we could see a meaningful selloff.  If it does hold they will be building support at this level and it could be a sign that we are going to see another leg up in the rally.  Remember that markets go up slower than they go down so I think that slow consolidation is a Bullish signal but if we have a selloff it will happen quickly.  If they head higher there should be some minor resistance around $286 because that was the all-time high in January.  If they head lower there should be support around the $268 level because that is where the two most recent lows were. 

 

Technology – The XLKs broke support around the $72.50 level, which was where the recent highs were in early June.  If they head lower the $71 level should provide some support because it was the bottom of the range in June and an all-time high in March.  The next level of support should be around $70 because it was the top of the range in May and again in late June.  This sector is 28% of the S&P 500 makeup.

 

Financials – The XLFs have trended higher since the beginning of the month.  They are now testing resistance around the $28.25 level, which has been the top of the range since March.  If they roll over it could bring the broader markets lower.  This sector is 14% of the S&P 500 makeup.

 

Healthcare – The XLVs gapped up out of their recent range but they formed a reversal pattern and reverted.  If the head lower there will probably be support again around $86.50.  There is support there because it was the top in March and April.  This sector is 14% of the S&P 500.

 

Consumer Discretionary – The XLYs continue to consolidate around all-time highs after breaking their recent uptrend.  If they head lower there will probably be some support around the $110 level because it was the top of the range at the end of June / early July.  Longer-term there will probably support around the $107 level because it was the top in February and March.  This sector is 13% of the S&P 500.

 

Industrials – The XLIs continue to uptrend but they are testing resistance around the $76.50 level.  That is where the three most recent highs were in April, May, and June.  There will probably be some consolidation this week.  This sector is 10% of the S&P 500.

 

Consumer Staples – The XLPs are testing resistance around the $53.50 level.  This level was resistance and the most recent high in April.  There is resistance here because it was support in February and March.  Longer-term the $50 level is important because it was the low in 2016, and the top of the range throughout 2015.  It was also the top throughout May and early June.  If it eventually breaks there may be a big selloff.  This sector is 7% of the S&P 500.

 

Energy - The XLEs are trading in the middle of their recent range.  They failed at $78 after becoming overbought in mid-May and more recently on July 10th.   This is the same level that they found resistance at in January.  They also hit resistance and rolled over at this level in December of 2016.  There is around $74 because it the top in late April.  If they break this support there could be a meaningful selloff because there are no clear levels of support until they approach the $68.50 level, which was the top of the range from mid-February through early April.  This sector is 6% of the S&P 500.

 

Materials - The XLBs continue to consolidate between the $58 and $60 levels but they are testing the top of the recent range.  The $58 level is where they found a low in May and where they traded from the end of June through early July.  The $60 level is where they found a top in April and May.  This sector is 3% of the S&P 500.