On the market summary table, I watch offensive sectors closely for clues on the overall market. Offensive sectors should keep pace with the market (S&P 500) during a bull run. Relative weakness or a bearish divergence would show underlying weakness. Offensive sectors include consumer discretionary, technology, finance and industrials. In fact, I would also rank the importance in that order. Consumer discretionary is the most economically sensitive sector and the most important. Looking at the charts, all four held their October lows with bounces this week. As with the major index ETFs, downtrends cannot begin without a support break and lower low. Put another way, the uptrends are in force until proven otherwise.
The Consumer Discretionary SPDR (XLY) forged a higher high in mid October and held support with a bounce this week. I will not consider this a dead-cat bounce unless XLY breaks back below 27. The bottom window shows XLY with the S&P 500 (red). Notice how close these two track each other
The Technology SPDR (XLK) remains in a clear uptrend with higher highs and higher lows. XLK held well above its October low this week and broke wedge resistance with a surge above 21. This breakout is bullish as long as it holds. Look for a move back below 20.7 to negate the breakout. XLK also shows relative strength versus the S&P 500.
The Financials SPDR (XLF) is the weakest link right now. While the S&P 500 held its October low, XLF broke below its October low. XLF recovered with bounces on Tuesday-Thursday, but still shows relative weakness overall. I am watching support at 14 and resistance at 14.5 for the next directional clue.
The Industrials SPDR (XLI) tested support from the October low and bounced after a harami on Friday-Monday. This week's bounce reinforces support. More importantly, it keeps the double top on hold and affirms the current uptrend. XLI was showing some relative weakness because it did not exceed its September high. However, the ability to hold the October low and bounce this week puts XLI back on track with the S&P 500.
