Over the long weekend, we wrote about our second-half 2021 views and observations. In that piece, we mentioned the 11 S&P sectors.
One Real Money subscriber asked, "What are the 11 stock sectors?" Certainly not hard to find on a simple internet search but that doesn't address which ones are in healthy uptrends and which ones are extended (overbought) and could be vulnerable in the weeks ahead.
Communications Services
The ( XLC) is the S&P Communications Services sector ETF. Let's look at two charts.
In the daily bar chart of the XLC, below, we can see a long uptrend in the past 12 months. The shares are trading above the rising 50-day moving average line.
Trading volume looks like it has been diminishing since March and the On-Balance-Volume (OBV) line looks like it has been stalled since early April, telling us that without signs of expanding or aggressive buying we should become a little skeptical of the advance.
In the lower panel is the 12-day price momentum study with lower highs being made from February. The pace of the advance is slowing and that can foreshadow a correction.
In this daily Point and Figure chart of XLC, below, we can see a potential upside price target in the $88 area. A trade at $74 would likely weaken this chart.
Consumer Discretionary
The ( XLY) is the Consumer Discretionary sector ETF. Let's drill down on two charts like we did on the XLC.
In the daily bar chart of XLY, below, we can see that prices are in an uptrend. XLY is trading above the rising 50-day moving average line.
Trading volume has declined from March. The OBV line has made a new high to confirm the new price highs.
The 12-day price momentum study shows lower highs from April to June to give us the start of a bearish divergence.
In this daily Point and Figure chart of the XLY, below, we can see a potential price target in the $205 area.
Consumer Staples
The ( XLP) is the Consumer Staples sector ETF and its chart, below, is not as strong, with prices trading below the cresting 50-day moving average line.
Trading volume has been declining from early March and the OBV line has been stalled since the end of March. The 12-day price momentum study shows lower highs from March to May.
In this daily Point and Figure chart of the XLP, below, we can see a potential price target in the $80 area.
Energy
We favored the upside in the ( XLE) , the S&P Energy Sector ETF, in our second-half 2021 story.
In thw daily bar chart, below, we can see that prices turned higher back in early November. Thje shares are above the rising 50-day moving average line and the trading volume looks steady. The OBV line shows a rise from November to support and confirm the price gains.
The 12-day momentum study shows lower highs from March to May to June for a bearish divergence. Divergences are leading indicators and not hard and fast buy and sell signals.
In this daily Point and Figure chart of the XLE, below, we can see an upside price target in the $63 area.
Financials
In this daily bar chart of the ( XLF) , the Financial ETF, below, we can see that the shares corrected to the downside in June. Prices are below the cresting 50-day moving average line. The daily OBV line shows some weakness in June as traders became more aggressive sellers. The 12-day price momentum study shows lower highs from February to May but this is not likely to be significant just yet.
In this daily Point and Figure chart of the XLF, below, we can see that the shares have exceeded a price target in the $28 area.
Healthcare
The next sector we'll look at is healthcare and the ( XLV) , or Healthcare Sector ETF.
In the daily bar chart of the XLV, below, we can see that prices have been pretty strong the past 12 months. There have been some corrections along the way but prices have made new highs and are trading above the rising 50-day moving average line.
The trading volume has been steady this year and the OBV line shows good strength from November. The momentum study has weakened from April to June but the uptrend remains strong.
In this daily Point and Figure chart of the XLV, below, we can see an upside price target of $132 -- not all that much according to the X's and O's but I would not become bearish on the XLV just yet.
Industrials
The ( XLI) is the Industrial Sector ETF and we said in our second-half forecast that for XLI, "... we can see a weakening picture. Prices have slipped below the cresting 50-day moving average line. The On-Balance-Volume line has weakened the past two months and the MACD oscillator is below the zero line in sell territory."
In this daily Point and Figure chart of XLI, below, we can see a potential upside price target in the $111 area. Prices may not reach the $111 area and I would consider that a sign of weakness.
Materials
The ( XLB) is the Materials Sector ETF.
In the daily bar chart, below, we can see that prices have corrected to the downside in June as the U.S. Dollar Index (DXY) has bounced to the upside. Prices are trading below the cresting 50-day moving average line. The rising 200-day line intersects just above $75 now.
The OBV line has rolled over in late May and early June telling us that traders have shifted from being aggressive buyers to being aggressive sellers. The MACD oscillator moved below the zero line last month for an outright sell signal.
In this daily Point and Figure chart of the XLB, below, we can see a nearby price target of $91.
Real Estate
The newest S&P sector is Real Estate. The ( XLRE) is the symbol for Real Estate Sector ETF.
In the daily bar chart of the XLRE, below, we can see that prices moved sideways until early January when a rally unfolded. Prices are trading above the 50-day moving average line but the line looks like it is cresting.
The trading volume appears to be steady but the OBV line shows an early June peak. The MACD oscillator made a slight new high in June before turning lower.
In this daily Point and Figure chart of XLRE, below, we can see a potential price target of $54.
Technology
The Technology Sector is represented by the ( XLK) ETF.
In the daily bar chart of XLK, below, we can see that the shares are up nearly 50% in the past 12 months -- pretty impressive. XLK is trading above the rising 50-day moving average line but the long stretch of weakness in the OBV line is concerning.
The 12-day price momentum study did weaken from April to June.
This daily Point and Figure chart of the XLK, below, is projecting the $171 area as a potential price target.
Utilities
In this daily bar chart of the Utility ETF, ( XLU) , below, we see a much different looking picture. Here the XLU has not made much upside progress in the past 12 months. There is a high in November and an equal high in April. Prices are testing the slightly rising 200-day moving average line -- something not seen on any of the other charts above.
The OBV line has been stalled since December. The MACD oscillator gave an outright sell signal last month as it fell below the zero line.
In this daily Point and Figure chart of the XLU, below, we can see a potential price target of $85. A trade at $57 is likely to turn the chart bearish.
Bottom-Line Strategy
The 11 S&P sectors present a different picture than the broader averages. In general it takes maybe seven sectors pushing higher with good participation to sustain a durable uptrend.
The shrewd market observer will be watching how many sectors continue to push higher and how many start to fade.
At turning points in the market it is key to drill down and see what is going on beneath the surface. Which sectors stop short of reaching a price target is something to focus on.
