WEAKNESS SPREADS TO OTHER SECTORS - HEALTHCARE SPDR BREAKS JANUARY LOW -- TECH SPDR BATTLES SUPPORT -- ENERGY SPDR TESTS 2008 LOWS -- UTILITIES SPDR BREAKS NOVEMBER LOW

SECTOR LEADERS SUCCUMB TO THE BEAR... Today's Market Message was written by Arthur Hill. - Editor

There are not many places to hide in this market. Richard Russell, of Dow Theory Letters, used to say: "In a bear market, everyone loses, and the winner is the one who loses the least." With the advent of inverse funds, traders now have more opportunities to profit on the downside. This does not, however, reduce risk. Long-only investors face a serious uphill battle, especially when all sectors start moving lower. There have been 38 trading days this year. The market was mixed the first 19 days. Chart 1 shows the Sector SPDR PerfChart from 31 December to 28 Jan (the first 19 days). Four sectors were in positive territory (technology, energy, healthcare and utilities). Five sectors were in negative territory with financials down a whopping 17.65%. The other gains and losses were relatively modest. Even so, there were still a few places to hide the first four weeks of the year.

Chart 1

Chart 2

These hiding places disappeared over the next four weeks. PerfChart 2 shows the Sector SPDR PerfChart from 31 Dec to 25 Feb. All sectors are now down as the four winners flipped into losers. Energy is down double digits and the utilities sector is down almost 10%. Technology and healthcare are holding up the best, but both are also down. Consumer discretionary, financials and industrials are leading the way lower with big losses. All sectors partook in the decline over the last four weeks. Weakness is spreading throughout the market. Except for cash and gold, there was simply no place to hide.

HEALTHCARE SPDR BREAKS SUPPORT... The next four charts highlight recent breakdowns in the January leaders. Chart 3 shows the Healthcare SPDR (XLV) with the most recent support break. The ETF showed relative strength in early February, but broad market weakness ultimately brought it down. XLV broke below its January lows with a sharp decline today.

Chart 3

TECH SPDR BATTLES SUPPORT... The Technology SPDR (XLK) broke support with a sharp decline on Tuesday, but recovered with a bounce back the last three days. Technically, the ETF forged a lower low by exceeding its January low. Even though the bulls are not going quietly, it looks like the deck is stacked against them after a gap down, trend line break and lower low.

Chart 4

UTILITIES SPDR BREAKS NOVEMBER LOW... The Utilities SPDR (XLU) was also showing relative strength in early February. While the broad market moved lower the first five weeks of the year, XLU challenged resistance around 30 in the first week of February. Relative strength dissipated over the last 2-3 weeks as XLU broke support with a sharp decline. The ETF even exceeded its November low.

Chart 5

XLE TESTS SUPPORT ZONE... The Energy SPDR (XLE) has been locked in a trading range since early October. However, the ETF established a higher support level with the late-December and January lows. This higher support level was broken when XLE declined to the low 40s over the last few weeks.

Chart 6