TWITTER LEADS TECH STOCKS LOWER -- DEFENSIVE CONSUMER STAPLES, UTILITIES, AND REITS CONTINUE TO ATTRACT NEW MONEY -- NETFLIX WEIGHS ON CONSUMER DISCRETIONARY STOCKS -- AMAZON IS A QUARTER OF THE XLY AND MAY BE OVERSTATING THIS YEAR'S CYCLICAL LEADERSHIP
OVERBOUGHT TECH SECTOR SEES SOME PROFIT-TAKING ... Chart 1 shows the Technology Sector SPDR (XLK) losing more than 1% today to lead the market lower. Its 9-day RSI line (top chart) had reached overbought territory above 70 suggesting that the XLK was due for a pullback. It's now testing its 20-day moving average (green line) which is its first line of defense. The XLK remains well above its 50-day average (blue arrow). Its biggest percentage loser is Twitter. Chart 2 shows the stock losing -6% and drawing dangerously close to its 200-day moving average. Some bigger stocks like Alphabet, Facebook, and Microsoft also had a weak day. Chart 3 shows Facebook (FB) already trading below its 200-day line.
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Chart 1
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Chart 2
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Chart 3
INDUSTRIALS MAINTAIN BREAKOUT ... Chart 4 shows the Industrials SPDR (XLI) having a relatively strong day. That kept it above its recent breakout point over its June high. That's the flat line drawn over the June peak, which now appears to be acting as a new support level. Two of its top performers today are shown below. Chart 5 shows Xylem (XYL) climbing to the highest level since April. Chart 6 shows PACCAR (PCAR) also climbing to the highest level in more than four months. The XLI also got some help from J.B. Hunt (JBHT) and Expeditors Intl. of Washington (EXPD).
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Chart 4
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Chart 5
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Chart 6
DEFENSIVE STOCKS ARE STILL HOLDING UP ... Money continues to flow into defensive stock groups which were today's sector leaders. Chart 7 shows the Consumer Staples SPDR (XLP) bouncing today from above its 50- and 200-day moving averages. Chart 8 shows the Utilities SPDR (XLU) nearing a new high for the year. The XLU cleared its 200-day average during June which put it back in an uptrend. Chart 9 shows the Real Estate Sector SPDR (XLRE) consolidating just below a new record high. Flat bond yields over the past three months may have lured money into dividend-paying stocks. Gains in those three defensive groups, however, are normally a sign that investors are starting to hedge their bullish bets.
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Chart 7
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Chart 8
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Chart 9
NETFLIX WEIGHS ON CYCLICAL SECTOR ... Chart 10 shows Netflix (NFLX) falling -6% today after failing a test of its 50-day moving average. That contributed to profit-taking in the Consumer Discretionary SPDR (XLY). Netflix has gained 77% this year which makes it one of the XLY's biggest gainers. By comparison, Amazon.com has gained +70% which makes it another XLY leader. Amazon, however, accounts for 25% of the XLY and, as a result, is largely responsible for that sector's 2018 gains. While the cap-weighted XLY has gained +18% during 2018, its equal weight version (with a much smaller Amazon weight) has gained only 7%. All of which suggests that Amazon's success this year, which accounts for a quarter of the XLY, may be overstating gains in the cyclical sector as a whole. We'll take another look at that issue in another message.
