Sector Analysis 08Jan12

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by Steve Auger

Sector Analysis Summary

Most of the sectors being followed are breaking out of triangle formations but not with conviction.  Volume is relatively light and resistance level penetration has not been particularly strong.  The transportation and industrial sectors appear to be the best long entries this week.  The utilities sector breakout has stalled and now appears to be breaking down.  Energy appears to be on the verge of falling as well.  See below for detailed sector analysis.

iShares DJ US Telecom

Chart of iShares DJ US Telecom showing triple bottom plus triange Proceed with caution (yellow light)ETF Symbol: IYZ
DJ US Telecom chart is exhibiting a (minor) bearish channel and attempted a breakout from a symmetrical triangle.  The security price quickly dropped back to the trend line.  Symmetrical triangles are neither bullish nor bearish and the ETF price could still break either way.  Given the price is trading within a bearish channel and well below the 200 day simple moving average it is best to sit on the sidelines and watch for a possible price breakdown.

 

iShares Dow Jones Transportation Average

iShares Dow Jones Transportation Average IYT showing ascending triange with support and resistance levels Buy ETF (green light)ETF Symbol: IYT
DJ Transportation Average has broken out of an ascending triangle which is very bullish chart pattern.  The breakout was not strong however.  The ETF price is just above the 200 day moving average, a good position to be for a move upward with an initial resistance of $99 - $100.

 

iShares DJ US Basic Materials

iShares DJ US Basic Materials chart showing triangle formation Proceed with caution (yellow light)ETF Symbol: IYM
DJ US Basic Materials has broken out of a symmetrical triangle but is close to the $65.50 resistance level.  The price of IYM is well below the 200 day simple moving average.  Given there are better opportunities in other sectors it is best to stay on the sidelines and wait for better chart patterns to emerge.

 

iShares Dow Jones US Consumer Goods

iShares Dow Jones US Consumer Goods showing ascending triangle and resistance level Proceed with caution (yellow light)ETF Symbol: IYK
DJ US Consumer Goods has broken out of an ascending triangle and returned back to the support level.  Normally this would be a good buy opportunity but the breakout was not strong and the ETF price is about half way between the 200 day simple moving average and the first resistance level.  The risk / reward ratio (1:1) is therefore not as good as I'd like to see.  Wait for a better opportunity - patience is a virtue.

 

iShares DJ US Industrial

iShares DJ US Industrial chart showing ascending triangle and resistance level Buy ETF (green light)ETF Symbol: IYJ
DJ US Industrial has broken out of an ascending triangle, returned back to its support level and is starting to rise slowly.  This ETF is now trading slightly above its 200 day simple moving average making this an excellent buy opportunity. The first resistance level is $71.

 

iShares DJ US Healthcare

iShares DJ US Healthcare showing resistance/support levels and trendline Proceed with caution (yellow light)ETF Symbol: IYH
DJ US Healthcare has prevously broken out of an ascending triangle and continues to rise.  This breakout likely has legs but the entry doesn't have a great risk / reward ratio as the current price is more than half way between the first resistance level ($75) and the support level.  Wait for a better entry point.

 

iShares DJ US Financial

iShares DJ US Financial Sector chart showing symmetrical triangle and resistance/support levels Proceed with caution (yellow light)ETF Symbol: IYF
DJ US Financial has broken out of an ascending triangle.  It won't go far before it meets resistance ($52.50) and is still well below the 200 day simple moving average.  Stay on the sidelines.

 

iShares DJ Energy

iShares DJ Energy chart showing wedge formation Sell stock (Red light)ETF Symbol: IYE
DJ Energy is on the top edge of a wedge.  It may be breaking out but more likely is at a local top.  This ETF is having difficult piercing the 200 day simple moving average. I am interpreting this chart as sell but a tight stop should be used to protect against a strong breakout.

 

iShares DJ US Consumer Services

iShares DJ US Consumer Services chart showing ascending triangle with resistance/support levels Proceed with caution (yellow light)ETF Symbol: IYC
Depending on how you draw the lines, DJ US Consumer Services has already, or is close to, breaking out of an ascending triangle.  The price is above the 200 day simple moving average.  The problem I have with this chart is that the ETF price is currently at a major (long term) resistance level and if it does break out then the next resistance level is close by.  The risk / reward is not particularly good as the price is closer to resistance than it is to the 200 day simple moving average.

 

iShares DJ US Utilities

iShares DJ US Utilities showing ascending triangle breakout and support level Sell stock (Red light)ETF Symbol: IDU
DJ US Utilities recently broke out of an ascending triangle but last week fell back and crossed below the support level.  It appears from this chart that the ETF is breaking down.  The price is well above the 200 day simple moving average.  This ETF should be sold with a tight stop just above the resistance level ($86.50).

 

Disclosure:  The author currently holds a position in IYT iShares Dow Jones Transportation Average.