S&P 500 Sector SPDRs Preview - August 4th, 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 

 

BHT identifies meaningful trends and important supply and demand levels in the financial markets. The following are important dynamics to consider in the S&P 500 Economic Sector SPDRs: 

S&P 500 - The SPYs spent the past two weeks consolidating above the important $280 level. This level is important because it was the top in February, March, and mid-June.

Technology - The XLKs found support around the important $71 level.  There is support there because it was the bottom of the range in June and an all-time high in March.

Financials - The XLFs broke their recent uptrend and are consolidating below the important $28.25 level.  This has been the top of the range since March.

Healthcare - The XLVs have been very strong but are overbought and approaching levels near their all-time highs.  They will most likely consolidate this week.

Consumer Discretionary - The XLYs continue to consolidate around all-time highs.  There is some support around the $110 level because it was the top of the range at the end of June and in early July.

Industrials - The XLIs are testing their recent uptrend line and consolidating just below the $76.50 level.  That is where the three most recent highs were in April, May, and June.

Consumer Staples - The XLPs gapped up and became overbought after breaking resistance around the $53.50 level.  There should be some support there now.

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 just above the $52 level after breaking their recent uptrend.  This level was the high in April.  They are overbought and testing the top of the recent range.

 

 

S&P 500 – The SPYs spent the past two weeks consolidating above the important $280 level.  This level is important because it was the top in February, March, and June before it was finally broken last month.  It should continue to be support in the near-term.   If it breaks we will probably see a meaningful selloff.   There may be support around the $268 level because it is where the two most recent lows were.  The top of the range has been around $283.50.  It we rally there will be some resistance around the $286 level because that was the top and an all-time high in January.

 

Technology – The XLKs found support around the important $71 level.  There is support there because it was the bottom of the range in June and an all-time high in March.  They closed above the $72.50 level.  The level was the top in June and the low in mid-July.  This sector is 28% of the S&P 500 makeup.

 

Financials – The XLFs broke their recent uptrend and are consolidating below the important $28.25 level.  This has been the top of the range since March.  The bottom of this range had been around the $26.80 level but it was broken in June so it may break again if they head lower.  This sector is 14% of the S&P 500 makeup.

In January the XLFs failed at the same levels that they did when they peaked in 2007 before the crash.  Markets do indeed have long-term memories and this clearly illustrates it.  If the XLFs rally to this level they will probably run into significant resistance there once again. 

 

Healthcare – The XLVs have been very strong but are overbought and approaching levels near their all-time highs.  They will most likely consolidate this week.  If they head lower there will probably be support around the $86.50 level.  It was the top in February and March and support in July.  This sector is 14% of the S&P 500.

 

Consumer Discretionary – The XLYs continue to consolidate around all-time highs.  There is some support around the $110 level because it was the top of the range at the end of June and in 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 are testing their recent uptrend line and consolidating just below resistance around the $76.50 level.  That is where the three most recent highs were in April, May, and June.  They briefly traded above it but became overbought and quickly reverted.  This sector is 10% of the S&P 500.

 

Consumer Staples – The XLPs gapped up and became overbought after breaking resistance around the $53.50 level.  This level was resistance and the most recent high in April because it was support in February and March.  It will probably be a support level again in the near-term.  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.

Longer-term, it is important to watch the $50 level in the XLPs if they head lower.  This level was the low in 2016, and the top of the range throughout 2015.  It was also the top of the range during this May.

 

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.

Energy Long-term - The XLEs failed at the $78 level in mid-May and more recently on July 10th.  This is where they found resistance in January.  They also hit resistance and rolled over at this level in December of 2016.

 

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.

 

Utilities – The XLUs are consolidating just above the $52 level after breaking their recent uptrend but they are testing the top of the recent range.   They will probably consolidate some more this week.  If they head lower longer-term, there will probably be support around the $49 level because it was the bottom of the range from February through June.  This sector is 3% of the S&P 500.