2013 SECTOR LEADERS ARE ENERGY AND FINANCIALS -- THEIR ETFS HAVE ACHIEVED BULLISH BREAKOUTS -- FINANCIAL LEADERS INCLUDE AMERICAN EXPRESS, GOLDMAN SACHS, AND JP MORGAN -- SEMICONDUCTOR ETF NEARS 10-YEAR HIGH
SECTOR LEADERS YEAR TO DATE... Chart 1 plots relative strength ratios of the energy, financial, and industrial sectors versus the S&P 500 (the black zero line). Those three sectors have been the top performers year to date. Technology has been the weakest (on a relative basis). Let's start by taking a closer look at the two top sectors -- energy and financials.
Chart 1
ENERY ETFS ARE BREAKING OUT TO THE UPSIDE... The weekly bars in Chart 2 show the Energy Sector SPDR (XLE) breaking out of a bullish "symmetrical triangle" (see circle). [A symmetrical triangle is defined by two converging trendlines. Since it's a "continuation" pattern (and the prior trend was up), it's a bullish pattern]. The XLE is now challenging its early 2011 high. A rise above that barrier (which appears likely) would pave the way for an eventual rise to its 2008 peak. Its relative strength ratio (gray area) has also turned up during 2013 for the first time in two years. The weekly bars in Chart 3 show the Market Vectors Oil Services ETF (OIH) rising above a "neckline" drawn over its 2012 peaks (circle). Its relative strength line (gray area) has also turned up.
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Chart 2
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Chart 3
FINANCIALS REACH FOUR-YEAR HIGH... It's usually a good sign for the stock market when financial stocks are in a leadership role and in an uptrend. That's certainly the case on both points. Chart 4 shows the Financials Sector SPDR (XLF) having risen above its 2011 peak to reach the highest level since 2008 (see circle). That represents a major bullish breakout and suggests that the bottoming pattern that started in 2009 has been completed. Its relative strength ratio (gray area) has also been rising and and is now at the highest level in nearly two years. The XLF includes a wide range of financial stocks that include banks, brokers, insurance, financial service companies, and REITS.
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Chart 4
AMERICAN EXPRESS, GOLDMAN SACHS, AND JPM ARE FINANCIAL LEADERS... Three of the largest stocks in the Financial SPDR (XLF) have assumed a market leadership role. The monthly bars in Chart 5 show J.P. Morgan (JPM) now trading at the highest level in twelve years (see circle). Its relative strength ratio (above chart) has also started to climb. [JPM carries the highest weight in the XLF]. Chart 6 shows American Express (AXP) exceeding its 2007 peak near 40 to reach a new record. Its relative strength line (above chart) is close to doing the same. Brokerage stocks are also starting to show upside leadership. Chart 7 shows Goldman Sachs (GS) trading over 150 for the first time in three years. The brokerage leader has also broken a resistance line drawn over its 2009/2011 highs (see circle). The stock's relative strength ratio (gray area) has also turned up.
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Chart 5
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Chart 6
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Chart 7
SEMICONDUCTORS NEAR MAJOR UPSIDE BREAKOUT... My January 29 message tried to make the point that a few large technology stocks (like Apple, Intel, and Microsoft) were weighing down the technology-dominated Nasdaq market and were masking other signs of strength in the technology sector. I used semiconductor stocks as an example of an important technology group that was starting to look a lot more bullish. The monthly bars in Chart 8 show the Market Vectors Semiconductor ETF (SMH) testing the upper range of a potential bottoming pattern extending back to its 2002 bottom. The SMH is trading above 35 for the first time since late 2003, and is nearing a test of that year's peak just above 36. That would certainly qualify as a major bullish breakout.
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Chart 8
ANALOG DEVICES AND XILINX BREAK OUT TO THE UPSIDE... Two of the chip stocks that I showed on January 29 are shown below. And both are achieving upside breakouts. The monthly bars in Chart 11 shows Analog Devices (ADI) trading above 45 (see circle) for the first time since 2001. That upside breakout puts the SMH leader above its early 2004 high near 43. Chart 12 shows Xilinx (XLNX) rising above the upper trendline in a bullish "ascending triangle" formation (see circle). That puts XLNX at the highest level in nine years and challenging its early 2004 peak.
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Chart 9
