Sector ETF Week In Review For March 5-9

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Includes: XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY
by: Hale Stewart
Summary

All sectors were in the green this week.

The tech sector is breaking out to the topside.

There's a lot of consolidation at the 30-minute and daily chart level.

Let's begin by looking at the performance over the last week:

Everybody rallied this week. We see modest gains between 1% for the XLUs and 4.5% for the XLFs.

Next, let's take a look at the relative performance:

Consumer discretionary is leading the pack, as traders bet that low unemployment will continue to translate into solid consumer spending. The financials are benefitting from the cutback in Dodd-Frank, while tech is rallying on what seems to be a never-ending series of mostly positive news reports. The industrials performance is a bit of a head-scratcher, considering it had a huge outflow this week on news of steel tariffs. Utilities and, to a lesser extent, basic materials are being hurt by rising interest rates (basic materials like utilities require a large amount of debt financing for their projects). Energy is down due to oil's modestly weaker price levels.

Next up is a collection of two-month charts to see how each sector is doing from a technical perspective:

There's a large amount of consolidation occurring, with various ETFs in the middle of various triangle patterns. The only sector that has advanced above its two-month high is the tech sector (second row, far left). The financials have broken through topside resistance (two row, second from right), and the industrials (top row, far right) and consumer discretionary (bottom) are about to do so as well. But the central theme since the sell-off is to consolidate losses. This is actually a very healthy development because it grants traders more time to comb through the data and take more thoughtful positions.

Let's pull the lens back a little farther to the six-month time frame:

This places recent consolidation into more perspective. Energy (top row, second from left), staples, and utilities (middle of the second row) are consolidating losses in the lower half of their six-month price charts. Financials and industrials (top row on the right) are consolidating near the top of their price ranges. But regardless of where in the chart it's occurring, the sectors are consolidating in some manner.

Next up, let's take a deeper look at some of the charts, starting with the weekly, five-minute time frame:

Above are four charts that show the XLKs, XLPs, XLVs, and XLYs. All four caught a bid starting on Wednesday, which followed a "rally, consolidation, rally" format.

Pulling back to the one-month time frame we see a lot of consolidation, which is typified by the XLKs:

This chart is typical of the 30-minute time frame charts. The XLKs just happen to be a more stable example of the phenomena, with the consolidation occurring within a narrow, 3 1/2 point range. But over the last month, all of the sectors have traded in some type of sideways consolidation pattern as they consolidate losses from the sell-off.

Finally, let's look at the daily chars, which, like their shorter-term brethren, are consolidating:

The top chart shows the consumer staples ETF while the bottom chart shows the industrial ETF. The former is consolidating at the low end of its yearly trading range while the latter is doing so at the top end.

Where do we go next week? The broader averages were higher last week, largely due to the amazingly strong employment report on Friday. The strongest earnings season in some time is also supporting prices while giving the bulls plenty of ammunition. But the market is also very pricey according to a number of valuation metrics. So, be a cautious bull.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.