In addition to the market-leading tech sector (XLK), some other sectors that I’m watching for potential clues to the next direction in the stock market, as well as potential swing trade ideas, are the financials (XLF), REITs (Real Estate Investment Trusts- IYR), and utilities (XLU). Of those 4 sectors, tech & finanicals, by far, have the largest impact on the broad market. I’ve covered XLK quite extensively recently & continue to watch for a definitive break above or below the recent trading range of last Thursday’s & Friday’s two large candlesticks (XLK closed right around the bottom of the range yesterday).
As recently highlighted, XLF rallied smack into the 27ish resistance level + key 61.8% Fibonacci retracement level while also putting in a divergent high on March 19th, failing at those dual resistance levels & falling very impulsively from there. The financials found support at the key 25.13ish support level (price support + top of the big Jan 16th gap + the 38.2% Fib) and has been consolidating while working off the near-term oversold readings since while forming what appears to be a bear flag continuation pattern. As with any potentially bearish chart pattern, a sell signal would only come on an impulsive break down below the pattern and with the 25ish support level still holding, it would also be prudent to wait to see that level (and the gap below) also taken out with conviction.
XLU & IYR, both interest rate-sensitive sectors, are starting to look toppy after extended rallies with negative divergences forming on both. The previous divergent highs & subsequent corrections were highighted in the charts below here in the past & I struggle to find many reasons as to not expect the same this time around.
SDP is the 2x short ETF for the Utilities sector & SRS is the 2x short for the REIT sector. DRV is the 3x leveraged REIT ETN but is prone to an above average amount of decay when held for extended periods of time, especially when the REITs are trading in a choppy, sideways range. REW is the 2x short tech ETF while SKF is the 2x short financial sector ETF. None of these are official short trades at this time although all are on watch as potential swing trades.
note: The XLU & IYR charts above are attached as a ‘gallery’ of multiple images. Gallery images typically do not show on the email notifications sent to subscribers & will need to be viewed directly on the site.