A THROWBACK FOR THE MATERIALS ETF, XLI BREAKS OUT AS RGI CONSOLIDATES, XLF GETS A LITTLE BREAKOUT, REGIONAL BANK AND BROKER-DEALER ETFS GET BREAKOUTS, INSURANCE AND MORTGAGE REIT ETFS NEAR HIGHS
MATERIALS ETF FIRMS IN RETRACEMENT ZONE... Link for today's video. The materials sector is at an interesting juncture because the long-term trend is up and it is trading near broken resistance after a throwback. Chart 1 shows the Equal-weight Materials ETF (RTM) within a long-term uptrend over the last three years. The Raff Regression Channel defines this uptrend and I am marking long-term support in the 80 area. Notice that RTM broke out with a surge to 90 in February and then fell back to broken resistance in March. A classic tenet of technical analysis is that broken resistance turns into support and this is the first test for the uptrend.
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Chart 1
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Chart 2
Chart 2 shows RTM with a close only bar chart for more details. Even though this ETF does not trade big volume, chartists can use it for an idea of broad sector performance because it is equally weighted. In addition to broken resistance turning into support, notice that the ETF is firming in the 50-62% retracement zone. After hitting a new high with a big advance, a 50-62% retracement of that advance is normal for a correction within a bigger uptrend. I am now watching the resistance zone around 87 for a breakout that would suggest the correction is ending.
SECTOR SPDRS VERSUS EQUAL-WEIGHT SECTORS... There is a big difference between the sector SPDRs and the equal-weight sector ETFs. The sector SPDRs are weighted by market-cap and heavily tilted towards large-caps. For example, GE accounts for over 10% of the Industrials SPDR (XLI) and the top ten stocks account for almost 50% of the ETF. In contrast, GE accounts for just 1.72% of the Equal-weight Industrials ETF (RGI) and the top ten stocks account for less than 20% of the ETF. One is not necessarily better than the other, but I think the Equal-weight Industrials ETF is a better representative for the sector as a whole. Choose sector SPDRs if you are looking for exposure to large-caps and more concentrated sector representation. Choose equal-weight ETFs if you are looking for broad sector exposure and exposure to small and mid-caps. Below is a list of major indices, major index ETFs, Sector SPDRs, equal-weight sectors, small-cap sectors and styles that you can plug into a PerfChart, SharpChart or Relative Rotation Graph (RRG).
Major indices: $SPX,$SPXEW,$MID,$SML,$RUT,$NDX,$INDU,$DJSM
Major index ETFs: DIA,SPY,QQQ,QQEW,RSP,MDY,IJR,IWM,IWC
Sector SPDRS: SPY,XLY,XLF,XLK,XLI,XLB,XLE,XLV,XLP,XLU
Equal-weight Sectors: RSP,RCD,RYF,RYT,RGI,RTM,RYE,RYH,RHS,RYU
Small-Cap Sector ETFs: IJR,PSCD,PSCF,PSCT,PSCI,PSCM,PSCE,PSCH,PSCC,PSCU
Styles: IVE,IVW,IJJ,IJK,IJT,IJS
XLI BREAKS OUT AS RGI CONSOLIDATES... John Murphy noted the big surge in General Electric (GE) on Saturday and this move propelled the Industrials SPDR above the channel trend line. Chart 3 shows XLI hitting new highs in November, December and February. The trend here was clearly up and the March decline formed a falling channel. A decline within a bigger uptrend is viewed as a correction and Friday's breakout signals an end to this correction. More importantly, this breakout also signals a continuation of the bigger uptrend. Chartists can mark support with the March-April lows.
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Chart 3
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Chart 4
Chart 4 shows the rest of the industrials sector using the Equal-weight Industrials ETF (RGI), and things look pretty good. RGI hit a new high in late February and then consolidated with a triangle into early April. Again, this looks like a consolidation within an uptrend and the odds favor a continuation higher. Look for a break above 91 to open the door to new highs. The indicator window shows the SCTR moving above 60 again, which means it is in the top 40% for relative strength. Within the industrials sector, chart 5 shows the Aerospace & Defense ETF (PPA) breaking a wedge trend line over the past week and the SCTR remaining above 80 since early February.
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Chart 5
XLF GETS A LITTLE BREAKOUT... As noted last week, I am still concerned with the finance sector because it is one of the weakest sectors in April. The Finance SPDR (XLF) is up around 1% so far in April and is the second weakest sector SPDR (behind XLU). The Equal-weight Finance ETF (RYF) is up less than .50% and the weakest equal-weight sector. Both XLF and RYF are holding their early February breakouts, but both have been quite flat the last ten weeks. I will keep a bullish bias as long as both hold above their March lows on a closing basis. Shorter-term, chart 6 shows XLF forming a small triangle into early April and breaking above the upper trend line today. This is very short-term, but it affirms support and this little breakout positive.
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Chart 6
REGIONAL BANK AND BROKER-DEALER ETFS GET BREAKOUTS... Within the finance sector, we are seeing strength in the Regional Bank SPDR (KRE) and Broker-Dealer iShares (IAI) today. Chart 7 shows KRE making another push at resistance that extends back a year. The ETF surged from mid January to mid March and then consolidated with a triangle of sorts. The ETF is up today and breaking above the upper trend line to signal a continuation higher. The indicator window shows the SCTR moving above 60 in early February and hovering above this level. The cup is clearly half full as far as relative performance is concerned. Chart 8 shows the IAI breaking a triangle trend line with a bounce on Monday.
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Chart 7
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Chart 8
INSURANCE AND MORTGAGE REIT ETFS NEAR HIGHS... Chart 9 shows the Insurance SPDR (KIE) with an inverse head-and-shoulders pattern from December to mid March and a breakout to new highs. The ETF is back above the breakout zone now and close to another new high. Chart 10 shows the Mortgage REIT ETF (REM) breaking out of a big triangle and hitting new highs in April.
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Chart 9
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Chart 10
WEBINAR WITH RRG... Note that I will be doing a webinar with Julius de Kempenaer of Relative Rotation Graphs (RRGs) on Tuesday at 1PM ET. Julius will first analyze relative performance using RRGs and I will follow with the corresponding charts.
Click here to register.
