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Sector Analysis: Cyclicals And The Transportation Index Say Stay Long– Week Ending Jan 20, 2017.

|Includes: XLB, XLE, Financial Select Sector SPDR ETF (XLF), XLI, XLK, XLP, XLU, XLV, XLY

Weekly Sector Recap

It was a lackluster finish to the holiday-shortened presidential-inauguration week. Financials finished poorly on the heels of what were positive earnings reports from several banks the prior Friday. Healthcare's tumble is perhaps due to uncertainty regarding Obamacare's impending repel and replace by the new administration and continuing talk about drug pricing legislation.

Consumer Staples (NYSEARCA:XLP) had a strong week boosted by Proctor & Gamble's (NYSE:PG) positive earnings announcement on Friday. PG is 12.4% of the total weighting in the XLP. Other contributing factors to Staples' performance were gains in tobacco stocks (NYSE:PM), (NYSE:MO) on the heels of Reynolds (NYSE:RAI) being acquired by British American (NYSEMKT:BTI).

Month-to-Date Sector Recap

The month-to-date performance for the first 13 trading days in January is still bullish leaning. Three of the four aggressive sectors - Cyclicals, Technology, and Industrials --are relative leaders. Financials (NYSEARCA:XLF) is the only sector of the four with a negative return so far for the month. The XLF is still working off an overbought condition after being up 18% from its post-election rally (Nov. 8th) to the previous week's close (Jan 13th). The Banking sub-group was up a whopping 24.5% in the same timeframe…

Consumer Discretionary

The Consumer Discretionary (NYSEARCA:XLY) sector has been in an uptrend since late 2014 (see top pane of the following chart). It broke through resistance in November of 2016 and has been gaining steam ever since.

What is vexing is the relative underperformance of the Retail SPDR (NYSEARCA:XRT). The XRT is a basket of 100 equal-weighted retail stocks and an essential subset of the XLY (72% of the XRT is Consumer Discretionary). The second pane in the chart below shows a downward trend in the XRT's relative strength vs. the S&P 500 since the Spring of 2015…

Most of the XRT's underperformance can be attributed to weakness in brick and mortar retail, especially department stores, apparel retailers, clothing & accessories, and footwear. Perhaps this is a result of the "Amazon effect".

Industry groups within consumer discretionary that have been steadily strengthening since early 2016 are Auto Parts, Broadcasting & Entertainment, and Hotels (see following chart). Strength in these areas are helping to offset weakness in the aforementioned retail groups and contribute to the November 2016 breakout in the XLY.

Transports Still Telegraphing Strength

In the Nov. 4th, 2016 Instablog it was highlighted that the relative strength in the Transportation Index was telegraphing more upside, and perhaps telegraphing the ensuing post-election rally. We saw the relative strength weaken during December, but has since resumed its uptrend since the beginning of the new year.

Also of note is the strengthening of the relative strength of the Railroad index. Both are positive signs for further market upside. See the following updated chart…

Thanks for the read…

Previous Instablog's for Reference:

Sector Analysis: Bullish Sentiment Is Still Alive And Well - Week Ending Jan 13, 2017.

Sector Analysis: Defensive Sectors Are Relative Leaders Entering 2017 - Week Ending Dec 30, 2016.

Sector Analysis: Is Defensive Posturing Starting To Develop? - Week Ending Dec. 23, 2016.

Sector Analysis: Trump Rally Extended & Cyclicals Sector Raising Caution Flag- Week Ending Dec. 16, 2016.

Sector Analysis: Trump Rally Resumes With Seasonality Tailwinds- Week Ending Dec 9, 2016.

Sector Analysis: Trump Rally Takes A Breather - Week Ending Dec 2, 2016.

Sector Analysis: The Trump Rally Was Telegraphed By The Transports - Week Ending Nov. 25, 2016.

Sector Analysis: Dow Transports Telegraphing Strength - Week Ending Nov. 4, 2016.

Disclosure: I am/we are long XLI.