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S&P 500 SECTOR VIEW: Playing to our Advantage

|Includes: SPDR S&P 500 Trust ETF (SPY), XLE, XLI, XLK, XLP, XLU, XLV, XLY

Good Morning,

On Wednesday, the S&P 500 closed at 883.92, down 2.7%.  The S&P 500 was down for the third straight day, closing near the lows of the day.  Weaker-than-expected April retail sales data, supply of equity coming to market, and the news on increased foreclosure activity were not taken lightly.  Along with Healthcare, the Obama administration now has the financial services industry in its sights as they try to overhaul how the industry is compensated.  Overseas, the slowdown in Chinese industrial production growth, which fell to 7.3% year-over-year in April from 8.3% in March, put addition pressure on the Materials (NYSEARCA:XLB) and Industrials (NYSEARCA:XLI).
 
The positive TRADE and TREND (818) remain for the S&P 500.  The dollar finished slightly higher and the VIX rose 5.8% yesterday. 
 
Yesterday, Technology (NYSEARCA:XLK) broke ranks. The Research Edge quantitative models now flash that eight of nine sectors in the S&P 500 are positive from a TRADE and all nine are positive from a TREND perspective. Right now the models suggest that there is -1% downside and 2.5% upside in the S&P 500.  At the time of writing, U.S. stock futures were pointing to a lower open.

The XLV (Healthcare) outperformed the overall market, closing down 0.2% to 25.50. The shift to low beta is working here; positive TREND (24.67) and TRADE.  
 
The XLF (Financials) significantly underperformed, falling 5.1% to 11.39; the TREND (9.27) and TRADE remain positive.  The XLF could see a correction to 10.93 and the TREND and TRADE would remain bullish. 

The XLE (Energy) underperformed on a relative basis, closing down 3.3% to 48.918.   The XLE lost its bid with the dollar up yesterday.  The XLE is bullish TRADE and TREND (44.91). 

The XLB (Materials) underperformed on a relative basis, closing down 4.3% to 25.52; still a bull on both TREND (22.24) and TRADE.  The sequential slow done in Chinese industrial production took the air out of the XLB.

The XLK (Technology) was in line with the market, closing down 2.5% to 16.62.  Yesterday, the XLK broke the TRADE line at 16.94, but the TREND remains bullish.    

The XLP (Consumer Staples) outperformed on a relative basis, closing down 1.8% to 22.50; bullish TRADE and TREND (21.52).  Tuesday was a solid day for the XLP and the SAFETY TRADE!

The XLY (Consumer Discretionary) significantly underperformed on a relative basis, closing down 3.5% to 22.26; the TREND (20.04) and TRADE remain bullish. We are long the XLY for a TRADE.
 
The XLI (Industrials) underperformed, closing down 4.1% at 21.63; the TREND (19.67) and TRADE remain bullish.  XLI was the third worst performing sector yesterday on the back of the Chinese industrial production data!

The XLU (Utilities) performed in line with the market, closing down 0.7% to 26.59; the TREND (26.28) and TRADE remain bullish. The SAFETY TRADE remains a factor.