Sector Analysis 13 May 2012
/by Steve Auger
The charts are looking fairly bleak **again** this week. Most of the sectors are either bearish or neutral. Keep in mind that market sentiment can change very fast. In this type of market condition it is best to go long some ETFs (such as transportation, utilities and basic materials) and short others (such as technology, energy, financials, consumer goods).
iShares DJ US Telecom
ETF Symbol: IYZ
DJ US Telecom breached the lower trend line of the ascending channel. This is usually very bearish - it is time to short IYZ if you have not already done so. Use a fairly "loose" protective stop as there could be a lot of volatility, both positive and negative.
iShares DJ US Technology
ETF Symbol: IYW
DJ US Technology remains bearish this week. I don't see any reason for hope in the chart or indicators. Look for a decline down to the support level of $69.60.
iShares DJ Transportation Average
ETF Symbol: IYT
Last week's predictions for DJ Transportation Average came true - after going up for two days, IYT dropped to the trend line shown in blue on the chart. Now I have changed the signal to yellow light (caution) from red. There are several reasons for this. (1) the cycle pattern indicates there should be a high in the next few days; (2) There should be some resistance to further declines at the lower trend line; (3) The price can't fall very far before seeing support levels; (4) Williams%R shows an oversold condition; (6) The ongoing drop in energy prices should be bullish for transportation; and (7) the negative market sentiment won't last forever - there is nothing particularly new going on in the news... the problems in Europe have been evident for a long time. If I was going to play the market long/short I would choose long for transportation and short for some of the other sectors.
iShares DJ US Basic Materials
ETF Symbol: IYM
DJ US Basic Materials is still trading within a descending channel. I'm expecting a drop down to the lower trend line as shown in the chart. After that there may be a price bounce. The Williams%R is signalling a potential bearish trend. It is difficult to read the OBV right now. Basic Materials is similar to the transportation sector. I don't see this sector falling too far from here as there is a support level at $65. There may be a strong move up if market sentiment turns bullish. Basic Materials should go up with lower energy cost.
iShares DJ US Consumer Goods
ETF Symbol: IYK
DJ US Consumer Goods broke down and out of the symmetrical triangle formed last week. The On-Balance Volume is still exhibiting bearish divergence. These isn't much positive in the chart or indicators. I changed the signal to Red Light from Yellow. Short this puppy.
iShares DJ US Industrial
ETF Symbol: IYJ
We are at a decision point for DJ US Industrial. The price has retreated to the support level of $68. The price is at a cyclic low (Monday), the OBV is bullish but the Williams%R is showing a bearish trend. My suspicion is that IYJ will experience a low on Monday and then have a strong bounce upward. However, if the support level is breached with strong volume then look for a drop down to $64.30.
iShares DJ US Healthcare
ETF Symbol: IYH
DJ US Healthcare doesn't appear to be going anywhere. Stay on the sidelines.
iShares DJ US Financial
ETF Symbol: IYF
DJ US Financial appears to be heading downwards to the $54.50 level as shown in the chart. The signal has been changed to Red Light - sell. OBV is bearish, Williams%R is showing a bearish trend.
iShares DJ US Energy
ETF Symbol: IYE
DJ US Energy is in a long-term bear market. I have drawn an Andrews Pitchfork on the chart - not one of my favorite indicators, but let's see if the price stays within the pitchfork boundaries.
iShares DJ US Consumer Services
ETF Symbol: IYC
DJ US Consumer Services has remained above the local support level. The ETF doesn't have a clear picture so stay on the sidelines. If the support level ($79) is breached then go short.
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iShares DJ US Utilities
ETF Symbol: IDU
DJ US Utilities price went up to the resistance level (suggested in last week's report). I have change the signal from Green Light to Yellow Light indicating caution. IDU may have trouble penetrating the resistance level and will likely bounce around between support and resistance.
Disclosure: The author "Walks the walk" in addition to "Talking the Talk".
