Sector ETF Week In Review For May 27-31

by: Hale Stewart

All sectors were down this week.

Defensive sectors are still leading in longer time frames.

The longer, individual charts are less than compelling.

Let's begin with this week's performance table:

This was a bad week for the market; all sectors lost ground. Interestingly, defensive sectors didn't occupy the top four spots. Real estate is number 1, but technology, basic materials, and consumer discretionary round out the top four spots. Healthcare, utilities, and consumer staples are 6, 7, and 9 in the table, respectively.

Defensive sectors return to the top spots on the 1-month chart, however, as real estate, utilities, healthcare, and staples occupy the 1, 2, 3, and 4 spots. But only real estate gained, and then only marginally. Utilities, healthcare, and staples all lost ground. At the other end are some fairly decent losses: consumer discretionary declined 7.6%, industrials were off 7.64%, and technology fell 8.66%.

And, the sector orientation in the 3-month time frame is also defensive with real estate, utilities, and staples in the top three spots. Technology and consumer staples, which had previously posted much larger gains in the 3-month time frame, are only up marginally now.

Now, let's turn to a few charts, starting with the 30-day technology and consumer discretionary charts - two sectors that pulled the market higher during the spring:

For the last month, technology has been in a solid downtrend, as shown by the 200-minute EMA (in pink). There are three general trends: a downward move from May 1-May 14, a counter-rally that lasted until May 16, and then a continuation of the move lower. Momentum has been negative for most of this time. Consumer discretionary follows a nearly identical pattern.

Defensive sectors, however, have three different patterns:

Real estate (top chart) and healthcare (bottom chart) have moved more-or-less sideways. Staples were bouncing sideways until this week when they moved sharply lower, hitting a 1-month low on Friday.

The XLU was the only defensive sector ETF that was in a meaningful rally this month (this occurred between May 16-May24). However, last week, this ETF sold off with the rest of the market.

Let's pull the camera lens back a bit farther and look at the two-month charts:

The first thing that stands out is the lack of any strong rallies - none of the charts is in a clear SW-NE upward trending pattern. The strongest chart is arguably the XLU (middle row, far right), which broke through resistance in Mid-May but has fallen back to the 50-day EMA. Another decent chart is the XLP (middle row, second from right), which was consolidating in the upper portion of its chart until last week. Real estate (top row, far left) has been trending sideways for the last two months. Aside from those, the charts are lackluster. Finally, there is little in the 1-year charts to like. Real estate (top row, far left) is one of the best of the lot. But it's been trending sideways for the last few months rather than moving higher. Utilities (middle row, far right) have a similar pattern. During the spring rally, tech (middle row, second from left) and consumer discretionary (bottom right) were two of the best performing sectors, pulling the market higher; both are now in a correction. Basic materials (top row, second from left), energy (top row, second from right), financials (top row, far right), and industrials (middle row, far left) are in solid corrections as well.

So, where does this leave us? For aggressive investors, not in a very good place. There's just not much to like in the current markets. And, when you take these charts with the clearly defensive tone of a rallying bond market, you're left with few solid opportunities.

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.