The iShares Dow Jones Transportation (IYT) closed sharply higher last week, as it broke its short-term weekly downtrend. The next resistance is at $94.66 to $95.57, and if it is surpassed that could resolve the divergence between the two Dow averages that has been a concern over the past few months.
The Performance chart reflects the year-to-date gain of the four sector ETFs that I continue to favor, as I discussed last week in "Best Sector Bets for the New Year." Leading the pack is the Select Sector SPDR Financial (XLF), which is up over 23%, followed by the Select Sector SPDR Consumer Discretionary (XLY) with over a 20% gain.
The Select Sector SPDR Health Care (XLV) is also outperforming the Spyder Trust (SPY) with a 17% gain, versus a 13.4% rise in SPY since the start of the year. The other sector whose weekly relative performance turned positive last week is the Select Sector SPDR Industrials (XLI). It is now up over 11% so far this year, but could overtake the SPY by early in 2013.
The February crude oil contract is trying to bottom out in the $85 area. A strong close this week above $91 would be quite bullish. There is additional resistance in the $95 area.
This could be what the energy sector needs to turn its relative performance or RS analysis positive.
The Spyder Gold Trust (GLD) looks ready to close the week lower. This would be the third consecutive lower weekly close, but so far GLD is holding above the monthly S1 pivot support at $162.23.
This action is consistent with the deterioration I noted in the OBV analysis several weeks ago in "Two Paths for Precious Metals," when I turned more cautious on the short-term outlook for the metals. My longer-term view is still positive.
The 50% Fibonacci retracement support is at $161.30, which if broken could signal a decline to the weekly uptrend (line a) at $159.20. The 61.8% support is at $158.29.
The Week Ahead
As long as the selling does not become any heavier Friday afternoon, it looks like a typical shallow correction. This suggests that the pessimism over the fiscal cliff is not yet that high, and could mean we will get some resolution of the fiscal cliff issue this week.
If we do get heavier selling, I will still be watching the support at the mid-November lows. A deeper drop should be a good opportunity to buy some of the sector ETFs, as I recommended last week, or some stocks in the strong sectors like the industrials.
I also continue to like many of the overseas markets, both developed and emerging. I am continuing to monitor some of the ETFs that are outperforming the US market. The Chinese ETFs have soared as the data on China's economy continues to improve. They are starting to get a bit overextended, and I may suggest taking some partial profits this week.
If you are not comfortable with individual stocks or only want to invest a smaller amount, the equity income funds I reviewed a few weeks ago deserve consideration. I would spread you investment out over a several-month period in what is known as dollar-cost averaging. Pick a fund or ETF with a low expense rate that does not carry any commission.