Sector Analysis 29 April 2012
/by Steve Auger
There is a lot of uncertainty in the charts this week - this is fairly normal for this time of year. We have the End-of-Month (bullish) phenomenon going on. This will likely continue until Tuesday or Wednesday.
After that there is the "go away in May" philosophy that some adhere to - except that this is an election year, which is traditionally bullish as the president pulls out all the stops to make the economy look good going into the election. This may be difficult given the poor shape the U.S. economy is in. My gut feel is there will be a third round of "quantitative easing" coming up soon. This will cause a new bull market - but it will likely take a new form as the last two didn't work so well :)
iShares DJ US Telecom
ETF Symbol: IYZ
DJ US Telecom bounced off the lower trend line of an ascending channel; and also bounced off the 200 day Simple Moving Average. Williams%R is mid range - if it retreats back down to -80 then there will be a continuation of the bearish trend. On-Balance Volume is exhibiting a bearish divergence from the price. All of this put together appears to indicate a bear market for IYZ. On the flip side, the price is still above the 200 day simple moving average. Conservative traders should stay on the sidelines until the lower trend line AND the 200 day moving average are both broken on the down side - End Of Day (EOD). Then short this ETF (or go long an inverse version).
iShares DJ US Technology
ETF Symbol: IYW
DJ US Technology penetrated the upper trend line of the descending channel last week and short positions should have been closed. It looks to me as if the down trend will be re-established but we need to take a wait-and-see attitude. Short positions should be re-established again if the support level shown on the chart is breached.
iShares DJ Transportation Average
ETF Symbol: IYT
DJ Transportation Average has formed a wedge (neither bullish nor bearish). I expect that the price will retreat from the upper (wedge) trend line this coming week. If the ETF penetrates the upper trend line then the price will experience resistance at the $96 level. The OBV remains bearish. Williams%R may be exhibiting a bullish trend - I'm inclined to believe the OBV here.
iShares DJ US Basic Materials
ETF Symbol: IYM
DJ US Basic Materials is still trading within a descending channel and has the same status/narrative as last week (repeated here). The On-Balance Volume is showing bullish divergence and Williams%R is also bullish. The Basic Materials sector will benefit from falling oil prices and IYM. Right now I don't have enough conviction to give this ETF a green light until the ETF pulls out of the descending channel which would be a very bullish sign. Aggressive traders could go long (now) with this IYM provided other sectors are held short.
iShares DJ US Consumer Goods
ETF Symbol: IYK
DJ US Consumer Goods is sitting near a resistance level. The On-Balance Volume is exhibiting bearish divergence and Williams%R went above -20 (This could signal a pull-back or start of a new bull trend). I suggest staying on the sidelines - aggressive traders could trade the short side with a protective stop placed above the resistance level. In fact the position could be reversed to long above the resistance level.
iShares DJ US Industrial
ETF Symbol: IYJ
As per last week's instructions I am now long with DJ US Industrial as the price went over $71. The OBV is still very bullish whereas the Williams%R may be signalling a short term pullback. IYJ will experience resistance at approximately $72.60. The price is well above the 200 day simple moving average and I'm inclined to take profits at the resistance level and possibly play a short term pullback at that time. Above $73, long positions should be (re-)established.
iShares DJ US Healthcare
ETF Symbol: IYH
DJ US Healthcare was slightly bullish last week but is approaching resistance. Best to stay on the sidelines until the resistance is penetrated. Aggressive traders may wish to short this ETF with a reversal (to long) above $79
iShares DJ US Financial
ETF Symbol: IYF
DJ US Financial is trading between support and resistance levels. The Williams%R bearish trend signal was broken. OBV is still bearish however. I can't tell which way this ETF is headed. I suggest putting a buy stop above the resistance level and a sell stop below the support level shown on the chart.
iShares DJ US Energy
ETF Symbol: IYE
DJ US Energy broke out from the descending channel last week but is now close to a resistance level shown on the chart. Maintain the short but make sure a protective stop is positioned above the resistance level.
iShares DJ US Consumer Services
ETF Symbol: IYC
DJ US Consumer Services penetrated the resistance level last week and a long position was entered. The resistance level is now support. A protective stop should be placed below the support level at $81.50.
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iShares DJ US Utilities
ETF Symbol: IDU
DJ US Utilities appears to be breaking out, however I'd stay on the sidelines until the next resistance level (see chart) is penetrated - or the price reaches the resistance level then retreats back to the support level. This would also be a long entry point.
Disclosure: The author "Walks the walk" in addition to "Talking the Talk".
