ETFs

As we head into the end of the year, Moneyshow’s Tom Aspray reviews the year’s top performing sectors and looks at the current technical readings to spot the best sectors for new investing.

Last week’s action in the Dow Industrials and S&P 500 was positive but as I noted in Friday’s Week Ahead market review even higher prices and very strong readings from the market internals are needed to signal upward acceleration.

The importance of sector selection was emphasized last week because while the Spyder Trust (SPY) gained just 0.2%, the Select Sector SPDR Financial (XLF) was up an impressive 1.7%. On the downside the Select Sector SPDR Materials (XLB) dropped 1.8% for the week.

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So far in 2012, two of the sectors are up over 20% with the Select Sector SPDR Financial (XLF) gaining 23.2% and was closely followed by the Select Sector SPDR Consumer Discretionary (XLY), which is up 21.5%. Both have sharply outpaced the 12.8% gain in the Spyder Trust (SPY).

The 4th quarter drop of 6.7% has cut into the performance of the Select Sector SPDR Technology (XLK) as it is now up just 13% for the year. At the September highs, XLK was up 23%.

Using the multiple time frame relative performance analysis, one can identify those outperforming sectors as well as which sectors have the best potential as we head into 2013.

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Chart Analysis: Last week’s nice gain by the Select Sector SPDR Financial (XLF) was helped by the upside breakout in Bank of America (BAC), which is over a 5% holding in XLF.

  • The weekly chart shows that the downtrend from the 2011 high, line a, is now at $16.37 with the September high at $16.44.

  • The 2010 and 2011 highs in the $17.20 area represent the next major resistance.

  • The relative performance or RS analysis has turned up from its WMA and the uptrend is line c.

  • This reaffirms the breakthrough major resistance, line b, and the completion of a significant bottom.

  • The weekly OBV just barely violated its uptrend, line d, on the recent correction.

  • The OBV did confirm the recent highs.

  • The November correction stopped in between the 38.2% and 50% Fibonacci support levels.

  • There is minor support now in the $16.60-80 area.

The Select Sector SPDR Consumer Discretionary (XLY) peaked in September at $48.01 and then dropped to a low of $44.66. This was a classical Fibonacci retracement as the correction held just below the 50% support at $44.72.

  • The 127.2% Fibonacci retracement target and the upper trend line are in the $49-$49.20 area.

  • The daily relative performance turned higher in early November as XLY was still declining.

  • This indicated that XLY was not falling as fast as the S&P 500, which was a sign of strength.

  • The daily OBV tested good support in November, line i, and has moved back above its WMA.

  • The weekly RS line (not shown) is acting stronger than prices while the OBV is lagging.

  • There is initial support now in the $46.50-$46.80 area with more important at $45.69.

NEXT PAGE: Two Sectors Showing Strength

Tickers Mentioned: SPY, XLF, XLB, XLY, XLK