Watch the Sectors for Clues of the Future

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Relevant
Posts: 505
Joined: Thu Apr 26, 2012 1:01 pm

Watch the Sectors for Clues of the Future

Post by Relevant »

The C-Fund (S&P500) moved into the “Black” over the past couple of weeks but hasn’t broken the longer trend of lower highs and lower lows which began in May of last year.

Another 2% climb would take the market out of the “Red” for 2016 and re-energize the Bulls. But will it? The S&P 500 charts are currently giving us some mixed signals.
Image

Click the Link Below for a Larger View
http://tspadvantage.org/wp-content/uploads/2016/03/SP500.png

The S&P 500 can be subdivided into 9 business sectors. By analyzing the individual sectors we can sometimes get a clearer picture of where the market is headed.

The chart below represents the Energy Sector which carries 7% of the S&P 500. No surprises here. We don’t need a chart to tell us gas prices are still cheap. The Energy Sector is still down a whopping 36% from it’s May high and remains solidly in Bear territory.
Image
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http://tspadvantage.org/wp-content/uploads/2016/03/XLE.png

The Materials Sector is primarily composed of companies involved in such industries as chemicals, construction materials, containers and packaging, metals and mining, and paper and forest products.

While the Materials Sector has seen a nice bounce recently it is still in the “Red” and only represents 3% of the S&P 500.
Image
Click the Link Below for a Larger View
http://tspadvantage.org/wp-content/uploads/2016/03/XLB.png

The Industrial Sector weighs in at 10% of the S&P 500 and includes industries in aerospace and defense, building products, construction and engineering, electrical equipment, conglomerates, machinery, commercial services and supplies, air freight and logistics, airlines, marine, road and rail, etc.

The Industrial Sector represents 10% of the S&P and is not only in the “Black” but it is only 2% away from breaching its November high. This sector should be watched closely because it could lead the market back into Bull territory. If the Industrials are in fact ramping up production then we should see the Materials and Energy sectors follow suit once excess inventories are absorbed.
Image
Click the Link Below for a Larger View
http://tspadvantage.org/wp-content/uploads/2016/03/XLI.png

The Healthcare Sector is a heavy weight in the S&P 500 at 15%. It is still in th "Red" and trending down
Image
Click the Link Below for a Larger View
http://tspadvantage.org/wp-content/uploads/2016/03/XLV.png

The Financial Sector at 16% of the market is in the "Red" and Trending Down.
Image
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http://tspadvantage.org/wp-content/uploads/2016/03/XLF.png

The Consumer Discretionary Sector represents Industries such as automobiles and components, consumer durables, apparel, hotels, restaurants, leisure, media, and retailing are primarily represented in this group. The Index includes McDonald's, Walt Disney Co., and Comcast and has a weighting of 13% in the S&P. While it's barely in the “Black” its longer term trend is more sideways than directional. Not many clues here.
Image
Click the Link Below for a Larger View
http://tspadvantage.org/wp-content/uploads/2016/03/XLY.png

The Technology Sector weighs in heaviest of all the sectors at 23% of the S&P 500. Think Microsoft, IBM, AT&T, Cisco, etc.. Once again, in the “Black” with a nice bounce but more of a sideways direction over the past year.
Image
Click the Link Below for a Larger View
http://tspadvantage.org/wp-content/uploads/2016/03/XLK.png

Next we have the usually boring lightweight Utility Sector weighing in at just 3% of the market with companies like Exelon and Southern Company. Now this chart looks interesting. Utilities on a tear posting a near 15% gain since early December and posting 3 new record highs for the sector last week alone????

Actually, this isn’t a good sign. Utility stocks are considered the safest investments next to high quality bonds but this sector normally underperforms the broader market. What we are seeing is a “flight to safety” for the 3.4% dividend yield the sector provides. This sector should be watched very closely. If this sector begins to turn down sharply in the next down turn someone just yelled “Fire” on Wall Street. On the other hand, if Utilities begin to fall while the rest of the market is climbing, it would indicate that the Bulls were ready to charge higher.
Image
Click the Link Below for a Larger View
http://tspadvantage.org/wp-content/uploads/2016/03/XLU.png

Last but not least we have the Consumer Staples Sector representing 10% of the market. The companies in this sector are primarily involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products, and personal products. Component stocks include Wal-Mart, Proctor & Gamble, Philip Morris International, and Coca-Cola.

This is considered the second safest sector behind the Utility Sector and it has been on a tear since August racking up a whopping 21% gain. Conservative investors are attracted to this sector for the Dividend Yield which is currently 2.5%. Again, we are seeing a “Flight to Safety”. This sector should also be watched closely for it’s reaction to movement in the broader market as well as how it is reacting relative to Utilities.
Remember, when prices rise, dividend yields fall and vice versa. If these two sectors continue to climb, their yields will eventually become unattractive.
Image
Click the Link Below for a Larger View
http://tspadvantage.org/wp-content/uploads/2016/03/XLP.png

In summary, while we still can’t tell what the future holds we know which “cards” to keep an eye on.

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User avatar
evilanne
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Re: Watch the Sectors for Clues of the Future

Post by evilanne »

Thank you Relevant....Very interest breakdown of sectors.

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Sad Al
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Re: Watch the Sectors for Clues of the Future

Post by Sad Al »

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sgtnichols
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Re: Watch the Sectors for Clues of the Future

Post by sgtnichols »

Given the drop in volume, I'm guessing the C Fund is heading for a downturn. This along with RSI over 70 and MACD over 40 does not bode well for bulls. The correlation of F to C Fund is interesting to watch as well.

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Tomanyiron
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Re: Watch the Sectors for Clues of the Future

Post by Tomanyiron »

sgtnichols wrote:Given the drop in volume, I'm guessing the C Fund is heading for a downturn. This along with RSI over 70 and MACD over 40 does not bode well for bulls. The correlation of F to C Fund is interesting to watch as well.

Sarge you and I (and maybe a few more) look at things like this. Non-chart people need not read any further.

I present this two year S&P 500 chart with volume as an indicator, and price channels overlaid on the volume. This chart is signaling a down turn. I hope the chart is not too-busy to understand.

Image

http://schrts.co/p4dw23

My observations:
1- The upper price channel line forms flat-topped buttes. (Kinda reminds me of the Mitten Buttes of Monument Valley.)
2- When there is a “cliff” drop-off, (yellow dotted lines) that’s a sign to get defensive.
3- When there is a “squeeze”, upper channel lowers, while bottom channel rises, (red ovals and red dotted lines, for the last two times this has happen), that’s the final sell trigger.

I know it’s not a perfect timing device, and it might be Easter before the top is in. But tell me what you think.
"A good decision is based on knowledge and not on numbers." Plato
"Perfect numbers like perfect men are very rare." Rene Descartes

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TopNotch
Posts: 244
Joined: Mon Apr 15, 2013 12:38 pm

Re: Watch the Sectors for Clues of the Future

Post by TopNotch »

Tomanyiron, take a look at this article on How to Uncover Institutional Buying. Although it relates to stocks, it could be logically extended to SPX. Ignore the screen parameters of Zacks rank and price that the author uses. Looks like a selloff could be setting up.

http://www.zacks.com/commentary/38217/h ... nal-buying
David Tepper - "There is a time to make money and a time to not lose money."

Warren Buffett - "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1."

User avatar
Tomanyiron
Posts: 4973
Joined: Mon Apr 26, 2010 6:39 am

Re: Watch the Sectors for Clues of the Future

Post by Tomanyiron »

Thanks TopNotch, I like this. Although I think for us, and our C and S funds, we would miss most of the rallies if we waited 3 weeks.

• Current Price greater than Price from 1 Week Ago
• Price from 1 Week Ago greater than Price from 2 Weeks Ago
• Price from 2 Week Ago greater than Price from 3 Weeks Ago
• Weekly Volume greater than Weekly Volume from 1 Week Ago
• Weekly Volume from 1 Wk Ago greater than Weekly Volume from 2 Wks Ago
• Weekly Volume from 2 Wks Ago greater than Weekly Volume from 3 Wks Ago


The bottom line is that, price is important. But Price + Volume = More important.
Finding the best buy/sell trigger with this, then combining it with other signals, may be the key.
"A good decision is based on knowledge and not on numbers." Plato
"Perfect numbers like perfect men are very rare." Rene Descartes

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