Stock investors got a nice present with the higher close on Tuesday, December 24, and the futures are showing further gains in early trading Thursday. The new highs in the major averages have kept the momentum positive. The new daily highs in the NYSE Advance/Decline are likely to be also confirmed by new weekly A/D line highs with Friday's close.
The markets are strong seasonally through the end of the year and the market internals continue to reaffirm the positive major trend as they have since early in the bull market. Nevertheless, the major market averages are now in high-risk buy zones. There are quite a few individual stocks that have just turned higher from good support on strong volume like those on my pre-Christmas buy list.
As we head into 2014, part of one's investment plan should be to look for those sectors that are leading the market higher as they should offer the best opportunities for new investments. These five sector ETFs made significant new highs in December; Select Sector SPDR Consumer Discretionary (XLY), Select Sector SPDR Technology (XLK), Select Sector SPDR Industrials (XLI), Select Sector SPDR Financial (XLF), and Select Sector SPDR Materials (XLB).
A review of the monthly, weekly, and daily analysis of these five ETFs allows us to determine which ones are likely to have the best potential as we head into 2014.
Chart Analysis: The Select Sector SPDR Consumer Discretionary (XLY) is up 41.6%, so far in 2013, adding to the 23.6% gain in 2012. It is close to a double-digit gain for the past three months as it is up just under 10%.
- The monthly chart shows that XLY has been hugging the monthly starc+ band for most of the past eight months.
- For January, the monthly starc+ band is at $68.57 with the 1st quarter R1 resistance at $71.25.
- The multiple time frame relative performance analysis has confirmed the recent highs.
- The monthly shows a strong uptrend from early in 2009 and shows no signs of wavering.
- The weekly and daily RS analysis (not shown) also recently made new highs but the daily has since dropped below its WMA.
- The monthly OBV broke through major resistance, line c, in 2013 but has been above its WMA since June 2012.
- The OBV is well above its rising WMA but the weekly WMA (not shown) is flattening out.
- For the 1st quarter, the preliminary calculation puts the pivot at $63.56.
- The rising 20-week EMA is at $62.76 with the November low at $62.24.
The Select Sector SPDR Technology (XLK) has been a recent leader as it is up 10.3% for the past three months but only 25.47% in 2013.
- The monthly chart shows that major resistance at line d was overcome at the end of March 2012.
- The monthly predicted resistance for January is at $36.51 with the starc+ band at $36.72.
- The uptrend in the monthly relative performance, line f, was broken in March 2013 and it is still below its WMA.
- The weekly RS analysis is just completing its bottom formation, which is a positive sign as we head into 2014.
- The monthly OBV has confirmed prices as it moved to new all-time highs after resistance at line g, was overcome in September.
- The weekly and daily OBV (not shown) will make new highs again this week.
- The 1st quarter pivot is at $34.14 with the monthly uptrend, line e, at $30.41.
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The Select Sector SPDR Industrials (XLI) is up just over 39% in 2013 with a 10.6% gain over the past three months.
- XLI has been close to its monthly starc+ band over the past two months and in January it will be at $53.29. The monthly projected resistance is at $53.43.
- The quarterly pivot for 2014 is at $49.50 with the rising 20-week EMA at $48.42.
- There is major monthly support at $42, line a.
- The relative performance has been rising sharply since it broke through resistance, line b, in July.
- The RS line has not made new highs and has strong support at the uptrend, line c.
- The monthly OBV completed its bottom formation (see circle) in July 2012.
- All OBV time frames have confirmed the recent sharp rally.
- The rising 20-day EMA is at $50.46 with further chart support in the $49.13 to $48.64 area.
The Select Sector SPDR Materials (XLB) has lagged the S&P 500 as it is up 24.42% YTD but is having a good last quarter as it is up 8.5%.
- XLB is still below the 2008 high at $46.54 with January's starc+ band at $48.51.
- The monthly relative performance is trying to complete a bottom as it is testing its WMA but is well below the major downtrend, line f.
- The weekly RS analysis needs to move above the October-November highs to complete a major bottom.
- The monthly OBV moved above its flattening WMA at the end of 2012 and is rising strongly.
- The weekly OBV (not shown) has not yet moved above the mid-November highs but the daily has made new highs.
- Currently, the 1st quarter pivot is at $44.12 with the weekly 20-week EMA at $43.37.
- In early October, XLB had a low of $41.08.
What it Means: The Select Sector SPDR Financial (XLF) was not covered this time as neither the monthly or weekly relative performance has confirmed the recent highs. The OBV analysis does look much stronger but it will need to be watched on the next correction.
The Select Sector SPDR Health Care (XLV) has been a favorite sector since 2012, and while the longer-term outlook remains strong, the weekly and daily analysis in early December, Potential Healthcare Headache?, suggested that it was vulnerable to a pullback. It did not make new rally highs this month and could correct further as we head into 2014.
The bullish sentiment was given a boost by the FOMC announcement but I still think that this is not a reason to change your strategy. Currently, I see no good entry points in these four ETFs as they are too far above support. I would expect to see much better opportunities in the first quarter of 2014.
How to Profit: No new recommendation
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.