Lately, CNBC has been squawking about how well bank stocks have been doing lately in anticipation of the stimulus package. Sure, many of them have rallied recently, but their charts for the most part hardly scream "buy!" As proxies for this group, look at the charts of the financial spider, the XLF, and the regional banking ETF, the RKH. (In the interest of saving space, I'm only showing the chart of the RKH, but the XLF chart is very similar.)
You can see that the price has been channeling downwards. A breakout above this channel and above its $60 resistance on strong volume would be the signal to go long in this group.
The financial media has also been crowing about the comeback in the materials sector. Say what? One certainly wouldn't get that idea by looking at the PYZ, the materials ETF. It's been doing a lot of nothing for the past several months as you can see if you look at the charts of its top ten holdings. The only bright spot in that group is the gold miner, Newmont Mining (NYSE:NEM).
The PYZ has been channeling between $17 and $20. If it eventually manages to fill its exhaustion gap at $24, then that's the time I would be convinced of a turnaround in the materials.
Utilities, Energy, and Agribusiness
The utilities (NYSEARCA:UTH), energy (NYSEARCA:XLE), and agribusiness (NYSEARCA:MOO) sectors have been in the process of consolidation for months. They all sport similar charts, so I'm only showing that of the energy spider, the XLE.
Upper resistance on the XLE is at $53; for the UTH it's $100, and for the MOO (don't you love that symbol?) it's $30 and change. A break through these levels would be bullish.
Drugs & Health Care
The charts of the biotechs (NYSEARCA:BBH), health care (NYSEARCA:XLV), and the pharmaceutical companies (NYSEARCA:PPH) have also been consolidating and they are all threatening to break overhead resistance anytime now. Resistance levels for these sectors are as follows: BBH is $180; XLV is $27.50; PPH is $63.
Gold & Silver
Lately, the precious metals have been among the better performers. The GDX tracks the gold miners, the GLD holds gold bullion, and the SLV tracks silver. (Note that the SLV is a new fund and has only been around for two months.) Of the two gold ETFs, the GDX has been the hands-down winner lately, more than doubling in value since its October low. (GLD has "only" recovered 30% since then.)
The GDX needs to clear $39 resistance to continue its upward progress.
Consumer Staples & Consumer Discretionary
There are many sectors out there that look ugly, but I was mildly shocked to see consumer staples, the XLP, among them. The usual thinking is that in tough times people still need to buy food and toilet paper but apparently this time is, indeed, different. This sector has been consolidating, too, but to the downside rather than to the upside. It's sitting right near it's local low at $22 and I fear that a break through that will spell disaster for this group.
Interestingly, the chart of the consumer discretionary sector, the XLY, is better but not by much. The ETF is currently trading just over $20, two bucks above major support.
The charts of the internet ETFs are looking as if they're poised to break out of their consolidation patterns. You can check out the charts yourself: Internet (NYSE:HHH), Broadband (NYSE:BDH), B2B (NYSE:BHH), Internet Infrastructure (NYSE:IIH). Most of these are thinly traded so bear that in mind when entering a position. It's a good idea to use limit orders in these instances. For an overall look at this sector, check out the XLK, the Technology Spider. It's been consolidating in the $16 range; a break above $18 would be your signal to start taking long positions.
You can see from the above charts that the financial media may be over-hyping the recent gains in some of the these sectors, especially in financials and materials. The future direction of the market will depend on how successful the stimulus package will be in putting money back into consumers pockets and confidence back into the financial system. Until then, there's nothing wrong with keeping your cash stashed under your mattress.