Bucking the Trend

10/13/2014 10:00 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

Despite the market’s overall downtrend last week, two sectors stood out for bucking it, so MoneyShow’s Tom Aspray takes a look at the weekly technical studies for two of these sectors’ ETFs and their largest components to see if their recent rallies are sustainable.

The late trading on Friday was a rough way to end the week as the selling increased into the close with most of the averages settling on the lows for the week. The S&P futures traded as low as 1880 Sunday night and tested the weekly starc- bands but are trying to bounce from the lows.

The EuroZone markets are also a bit higher in early trading but the close will be more important. The extent of the selling last week makes a sharp reflect rally likely this week but it will take more than a 1-2 day rally to reverse the negative signals from the daily technical studies.

Two sectors stood out last week for bucking the market’s overall downtrend. A look at the weekly technical studies for these two ETFs as well as their largest components will help determine whether their recent rallies are sustainable.

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Chart Analysis: The Sector Select SPDR Utilities (XLU) had a high of $43.66, which slightly exceeded the early September highs but it closed well below the best levels.

  • A strong close above last week’s high will signal a rally to the weekly starc+ band at $45.02.
  • The weekly trading range has upside targets in the $47-$48 area.
  • The weekly relative performance has moved through its long-term downtrend, line a, and is well above its WMA.
  • The formation of the RS line is consistent with a longer-term sign that it will continue to outperform the S&P 500.
  • The OBV moved convincingly above the resistance (line c) last week as it had been forming higher lows, line d.
  • The daily starc+ band was tested late last week making a pullback likely last week.
  • The 20-week EMA is now at $42.34 with the lower daily starc band at $41.66.

The Sector Select SPDR Consumer Staples (XLP) made new 16-week highs last week but closed close to where it opened the week.

  • On a move above $46.11, the weekly starc+ band is at $46.87.
  • The RS line has risen sharply and overcome the downtrend, line f.
  • The WMA of the relative performance is also now trying to turn higher.
  • The daily RS line is rising even more sharply.
  • The weekly OBV has moved well above the summer’s highs, line g, as the volume has confirmed prices.
  • The OBV bounced off its WMA just a few weeks ago.
  • The 20-day EMA and short-term support is in the $45.16-$45.29 area.
  • A drop below this support zone should signal a decline to the $44.50-$44.80 area.

NEXT PAGE: 2 ETF Stock Holdings to Watch

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Duke Energy (DUK) is the largest holding in the Sector Select SPDR Utilities (XLU) at just over 9%. It has a current yield of 4.08%.

  • The weekly chart shows last week’s strong close above the resistance, line a, in the $75 area.
  • The weekly starc+ band is now at $79.01 with upside target from the trading range at $84-$86.
  • The weekly relative performance has moved through its resistance that goes back to the middle of 2013.
  • The move in the RS line above the early 2014 highs completes its bottom formation.
  • The weekly on-balance volume (OBV) has also completed its basing formation as the resistance at line d, was overcome.
  • The higher lows in the OBV, line e, are a sign of accumulation.
  • There is good support in the $75 area with more important in the $72.50-$73 area.

Procter & Gamble (PG) is over a 13% holding of the Sector Select SPDR Consumer Staples (XLP) and has a current yield of 3.0%.

  • PG is still below the major resistance at $85.80, line f.
  • The weekly starc- band is at $86.62 and a completion of the trading range has upside targets in the $95-$97 area.
  • The relative performance tested its WMA at the end of August before tuning higher.
  • The move through the downtrend, line g, suggests it is now a market leader.
  • The weekly OBV overcame its major resistance, line h, in the middle of August.
  • It was very strong last week and continues to lead prices higher.
  • The daily OBV (not shown) has turned up but is still below its WMA.
  • The weekly chart has good support now at $82.60-$83.11 with the starc- band at $80.57.

What it Means: Though the weekly relative performance and OBV analysis does look strong on these two holdings and their largest holdings, the daily studies are not yet confirming. Also, the daily starc+ bands are being tested, so, therefore, a pullback does some likely.

How to Profit: No new recommendation.

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