Quick Charting Sector Strength and Weakness on the Breakout to New Highs

While the SP500 itself broke to all-time highs this morning, not all sectors participated in the breakout.

Swing trading opportunities often come from focusing on strong stocks in strong sectors while avoiding weak stocks in weak sectors.

Let’s take a quick glance at the Nine Sector SPDRs (ETFs) and note the relative strength to the recent May high and current breakout:

Continuing an update from the prior post Charting the Top Three Strongest Sectors at the Highs, we can see the broader picture of Sector Strength and Weakness.

We can also see the outcome of the prior ‘prediction’ post regarding Strength in Retail Forecasting Future Stock Market Strength confirmed with this morning’s breakout event.

I color-coded the ETF price performance of the current high (with the SP500 at fresh all-time highs) relative to the ETF’s May peak.

The larger the green rectangle, the greater the ETF has traded ABOVE the May high; also, the greater the red rectangle, the lower the ETF has performend relative to the high.

It’s a very simple way to view Sector Strength or Weakness at a glance.

Based on the grid above, we have three categories of ETF location:

The Strongest:

• XLF Financials
• XLI Industrials
• XLY Consumer Discretionary
• XLV Health Care

The Middle of the Pack/Unchanged from May high:

• XLK Technology
• XLP Consumer Staples
• XLE Energy
• XLB Materials

The Weakest:

• XLU Utilities

Again, traders looking to play bullishly in a pro-trending market tend to concentrate their attention on strong stocks (fundamentally and technically/chart) in strong sectors (relative performance to the SP500 and other sectors).

Traders should be highly selective of stocks in the “Middle of the Pack” sectors and be wary of trading stocks in the weakest sectors.

We’ll continue to follow broader trends in money flow across sectors and any updates to the current landscape.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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