3 sectors leading the charge
Strength in energy and technology and a breakout in financials are needed to keep the rally moving.
As we head into the final month of the first quarter, three of the 10 major sectors are showing gains in excess of 10% for the quarter. Several sectors have been correcting since the January highs, however, and may be close to turning around.
Only one sector exchange-traded fund, the Select Sector SPDR - Utilities (XLU -0.87%), has had a negative performance for the first quarter, but as I wrote Thursday, utilities are entering a strong seasonal period and there are signs that the correction in this sector may be ending.
The first-quarter statistics also show that six sectors are currently outperforming the S&P 500, which reflects the broad-based nature of the stock market rally. It should be no surprise that the Select Sector SPDR - Technology (XLK +0.27%) is the best performer, up 14.1%.
Apple (AAPL +2.25%) makes up more than 17% of the ETF, followed by Microsoft (MSFT +0.34%) at 8.3%. While this is an inexpensive way to participate in Apple's growth, it will also be overly sensitive to any declines in the stock. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
For the stock market to continue moving higher, it will be important that one sector is able to break out to new highs and that two currently lagging sectors complete their corrections.
Chart Analysis: The Select Sector SPDR - Financial (XLF) has been locked in a fairly narrow range for the past five weeks, but it has held well above the chart support in the $14.20 area, line b.
The Select Sector SPDR - Technology (XLK +0.27%) broke through major resistance, line e, in January and accelerated to the upside. The weekly Starc+ band is now at $30.05 with additional upside targets in the $32 area.
The Select Sector SPDR - Energy (XLE -0.37%) dropped to test the September highs and stronger support (line a) at $72.50 this week. There is further support now at $68.74- $70.13 with major support at $64.80.
The Select Sector SPDR - Materials (XLB -0.67%) is up 9.4% in the first quarter but is still 3.6% below its recent high at $37.97. It hit its uptrend, line g, early in the week.
What It Means: This analysis suggests that the energy, financial, and materials sectors need to be watched closely in March. Given the seasonal pattern for crude oil to bottom in February, the energy stocks look the most attractive for new purchases.
There are also likely to be some new opportunities in the technology sector, while the completion of a weekly bottom in the RS analysis is needed to turn me more positive on the financials.
Friday's monthly jobs report was better than expected. The stock index futures were higher in reaction to the report, and a higher daily close on Friday would suggest that the uptrend in the stock market has resumed.
How to Profit: I am still cautious about adding new positions in the sector ETFs at this time, although I will be watching them closely for new entry points.
Portfolio Update
By Tom Aspray :MoneyShow.com
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