Research Edge's Sector View: Nearly a Perfect Peak

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 |  Includes: XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLY
by: Keith McCullough

On Monday, the S&P 500 closed at 907.24, up 3.4%. The surge in the stocks was on the back of positive news from the manufacturing sector in China; expansion and US economic stabilization following better-than-expected March construction spending and the second straight monthly improvement in pending home sales data (see our post Housing: Objects in the Mirror May Appear Closer than They Are).

At this point the MEGA squeeze has found its crescendo! The S&P 500 is overbought; but remains positive TRADE and TREND (815). The dollar index was down yesterday, finishing down 0.70%. This helped to reflate commodity and commodity related stocks. The Banks were a bright spot on the day, with more of a focus on profitability, including Warren Buffett's comments on Wells Fargo (NYSE:WFC).

Yesterday we moved to nine of the nine sectors bullish on TRADE (a positive move for Healthcare) and eight of the nine remain bullish on TREND. The only sector not bullish on TREND is Healthcare (NYSEARCA:XLV)! The Research Edge models suggest that there is 4.5% downside and 0.5% upside in the S&P 500. At the time of writing, U.S. stock futures were pointing to a slightly lower open.

The XLV (Healthcare) underperformed on a relative basis, closing up 1.6% to 24.54. On Monday, we saw a positive TRADE breakout for Healthcare; the bearish TREND line overhead is now only 19 cents away.

The XLF (Financials) outperformed on Monday, rising 10% to 11.73. Clearly a big league short squeeze today with Financials leading the overall market higher; TREND and TRADE remain bullish. The banks led the financials higher yesterday, as Warren Buffett was talking up his book - Wells Fargo was up 24%.

The XLE (Energy) outperformed, closing up 4.0% to 49.15. The XLE was the 3rd best sector yesterday; we sold out of our long position into strength. The XLE remains bullish TRADE and TREND (44.70).

The XLB (Materials) outperformed on a relative basis, closing up 5.6% to 27.18. The XLB was the 2nd best sector t and that made sense with the USD breaking to new lows; still a bull on both TREND (21.95) and TRADE.

The XLK (Technology) underperformed on a relative basis, closing up 1.8% to 17.80. The XLK continues to walk the high wire of overbought momentum; bullish TRADE and TREND (15.41).

The XLP (Consumer Staples) underperformed on a relative basis, closing up 1.5% to 22.43. We covered our short position last Friday; this sector is now bullish across durations.

The XLY (Consumer Discretionary) underperformed on a relative basis, closing up 3.2% to 23.93. Did we sell our long position too early? YUP! For the XLY the TREND (19.81) and TRADE remain bullish. &nbs...

The XLI (Industrials) performed in line with the market, closing up 3.2% at 22.72. The XLI was the 4th best performing sector yesterday; the TREND (19.64) and TRADE remain bullish.

The XLU (Utilities) underperformed on a relative basis, closing up 1.5% to 26.93. The XLU continues to breakout, but still needs to confirm its move.