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July 28, 2005
Divide and Conquer
This is an excerpt from today’s Daily Swing at TDTrader.com. I find it quite helpful to divide the S&P 500 into sectors and the Nasdaq into key industry groups. Analysis of these parts tells me which sectors/groups are strong or weak. More important, which sectors or groups are driving the S&P 500 (SPY) and Nasdaq 100 (QQQQ).
As the table above shows, five sectors are bullish and three are neutral/bullish. It is important to see the Consumer Discretionary SPDR (XLY) and Information Technology SPDR (XLK) bullish as strength in these two bodes well for the overall economy. Until some of these sectors turn bearish, the overall outlook for the S&P 500 must be bullish. Tomorrow, I will post an overview of the key Nasdaq 100 industry groups.
The Consumer Discretionary SPDR (XLY) is hugging the upper trendline of the rising price channel. Despite being overbought with waning upside momentum, there are no signs of weakness as the stock crawls higher.
The Consumer Staples SPDR (XLP) remains within a triangle over the last five months and the surge above 23 provides a bullish bias within this neutral pattern. Watch key resistance at 23.5 for a breakout and minor support at 23 to turn the bias bearish.
Despite some hesitation in the Energy SPDR (XLE) over the last five weeks, the overall trend remains bullish. A rising price channel has taken shape since mid May and the upside target is 52. Watch key support at 44.4 for a trend change.
The Finance SPDR (XLF) certainly has become boring over the last two weeks. The stock gapped higher on 14-July and then pulled back into a tight trading range. Watch support at 29.9 for early signs of weakness.
The HealthCare SPDR (XLV) remains one of the strongest as money moves into pharma and biotech. The stock broke resistance at 30.8 and this area turned into support. The May-July period looks like a big consolidation and I expect a breakout at 31.8.
The Industrials SPDR (XLI) broke above minor resistance at 29.9 and the upper triangle trendline for a bullish bias. These breakouts give the stock a bullish bias, but it would take a new reaction high to turn fully bullish. Watch minor support at 29.8 for a failure and to turn the bias bearish.
Perhaps my bearish bias in the Materials SPDR (XLB) was a little premature. After all, the stock formed three white soldiers in May and July to solidify support around 27 (gray ovals) and broke above trendline resistance. There was a gap down on Tuesday, but the stock firmed on Wednesday. A break above 29 would turn this chart bullish and a move below 27.7 would put the bias back with the bears.
After a bullish breakout at 20.5, the Information Technology SPDR (XLK) consolidated with a flat flag. These are bullish continuation patterns and a move above 21.3 would signal a continuation higher. Watch flag support at 20.8 for early signs of weakness.
No change in the Utility SPDR (XLU) as the trend remains clearly bullish and there are no signs of weakness. A lot of black candlesticks have started to appear, but there are no worries as long as minor support at 31 holds.
Posted by Arthur B. Hill at July 28, 2005 07:44 AM