Leadership Returns From Technology and Consumer

Each week I scan the ten sectors of the S&P 500 index to define what is moving the index, up or down. The index has been defined by a trading range the last three weeks. That has led to speculation of all types of projections looking forward. As we start a new week and new month of trading the same question remains, up or down? Coming off a solid week of trading it is easy to allow our psyche to answer up, but emotions make for a bad trading strategy. The sideways trend remains in play with the bias towards a test of the previous highs. The chart of the index below shows the break above the mid-range resistance at 1392 and a close above the 1400 mark. The move towards the 1420 high is well underway.

Looking at the leadership off the low of April 23rd (test of the bottom of the trading range) Consumer Discretionary is the leader up 3.4%. A look at the chart of XLY, SPDR Consumer Discretionary ETF shows a move above the March 26th high. The sector has reestablished the previous uptrend and closed at a new high. Since the April 10th establishment of the low end of the trading range XLY has been the leader up 5.5%. The leadership comes from the retail sector which has produced a 5.2% return during the same period. Amazon’s results on Friday was  major contributor to the break higher. The retail sector remains one of the leaders for the broad market. The break higher makes XLY the first to break above the previous high. Will the other sectors follow suit? That is what it will take if the index is to resume the previous uptrend and take out the high of 1420.

The balance of the leadership has come from Technology, Financials, Energy and Industrials. Our old friends have returned to take over the short term leadership again. Technology was in dead last when the bounce started and finished second to Consumer Discretionary on the move. Financials made a solid move higher of 3.6% to end in the middle of the pack. The chart below shows the ten sectors of the S&P 500 index since the April 23rd low through Friday’s close on one chart with the index being the white line. If also shows the move since the April 10th low where the leadership was Basic Materials, Industirals, Utilities and Energy? That shows the defensive nature investors were taking as a transition away from growth stocks. Is the fear trade over? Are we heading back to all in on growth? Not so fast on that assumption, there are plenty of issues facing the market short term. Not the least of which is the economic data this week.

The bounce last week currently is a trade within the current trading range. The first phase was to break through the mid-range resistance at the 1392 level which was accomplished. The next is a test of the previous high of the range at 1420. If there is still enough momentum to break above that level the uptrend will be resumed and we are heading higher. That said, my outlook is prove it. There are too many issues standing between here and there. I am not a believer yet in the resumption of the uptrend off the October lows. First things first as we watch to see how this week unfolds and we push towards the 1420 mark. If we test the move from last week it will provide some trading opportunities. They have been laid out on the Sector Watch list for review.

One day at a time, One trade at a time is our current approach to the market.