Friday, September 12, 2008


The Materials Sector (XLB) may bounce and meet resistance at around $39. Regardless, the materials are in a confirmed downtrend and must see a capitulation before a strong rally occurs. As hedge funds continue to sell off their holdings, expect continued downward pressure.

The Health Care Sector (XLV) has been doing quite well and is now in a correction. I expect a successful test of support at $32; otherwise, the rally is over. Notice how the correction is highly irregular and formed on huge volume on the down days, a bearish sign.

Consumer Staples (XLP) is the best performing sector yet. In recessionary times, the staples will outperform the general market. The continuation gap suggests that the staples have much more room to the upside. The sector has major support to drop back to, if needed, against the 50-day and 200-day MA’s.

The Consumer Discretionary sector (XLY) is performing tremendously well along side the staples. This is surprising since the sector represents non-essential consumer spending. Currently, the sector is trading in a neutral range and needs to break away from the 200-day MA in the next several days. Otherwise, this will mark the 5th rally attempt, and flash a warning signal of an impending breakdown.

The Energy sector (XLE) has broken down along with the materials sector. The small bounce should continue, but not for long as the trend remains downward. There is major resistance at $70 and also notice the increasing volume. Capitulation should arrive shortly.

Have the Financial Sector (XLF) found a bottom? All I can say is it’s a short-term one. A clean break above $23 is considered a buy, but it must occur soon. The churning at the 50-day MA marks numerous rally attempts to continue an uptrend. Note the increasing volume.

The Industrial sector (XLI) is another group that hedge funds are dumping hand over fist. Expect a bounce from $33, possibly forming a double bottom. A failure at this level will mark the beginning of another primary down leg.

The NASDAQ rally is over, and the Technology sector (XLK) is fighting for its life (yes, the markets have a life of their own, right?) to maintain support at $21.50. If this breaks, there will tremendous downside risk as the downward trend continues. Notice how the technology sector is making lower highs, a bearish sign.

The Utilities sector (XLU) resembles the breakdown in the materials sector. The current consolidation is most likely forecasting a sharp downward continuation. Note the increasing volume on the breakdown.

No comments: