Sector Groups in a Tight Spot
I have always deferred the majority of my market analysis to the Weekly timeframe. I feel that making too many decisions based on one day's worth of news or price movement tends to be reactionary and also leads to many false signals. When you wait for the Weekly chart to close there is a lot more information that has been uncovered, analyzed, and absorbed. The signals that tend to follow this larger interpretation of data and sentiment I find more reliable.
There is a lot of talk daily about this market recovery; there is talk about the 200 Day SMA, each day's movement, individual earnings reactions, etc. There is a hyper-awareness by the majority of market participants and Financial Media to the "hot story" of the day. But rather than taking this tunnel-vision approach, I find it much more telling to step back and observe the larger context of this rally to assess the overall trend health.
Financials XLF - Rally back to prior failed support and into falling 20/50 Week SMA's. Usually this is a poor risk/reward setup for a bullish bias.
Consumer Discretionary XLY - Pushing through falling weekly SMA's, still lower low/lower highs.
Technology XLK - Into weekly SMA resistance, still lower low/lower high for now.
Semiconductors SMH - Pushing right through prior failed support and weekly SMA resistance. Enough space is being created above the 20 Week SMA to setup a possible Bull Flag on a digestion of this rally, while the moving average should turn up under price and could become supportive. Above December high is notable strength. Next we look for a higher low to form.
Industrials XLI - Powering right through prior failed support and clearing weekly SMA resistance. Moving above the December high is notable strength. In position now, due to significant strength, to form a higher low and possible "right shoulder" for new Inverse Head Shoulder pattern on a pullback.
Materials XLB - Soft recovery and still decently below prior broken support level.
Energy XLE - Rally back to falling 20 Week SMA and lower boundary of prior trading range.
Health Care XLV - Trading above weekly SMA's while 50 Week SMA still rising (uptrend). One of the better looking groups overall during this corrective period.
Consumer Staples XLP - Long-term trading range, price has recovered back above weekly SMA's.
Utilities XLU - Pressing near all-time highs, weekly SMA's are rising suggesting uptrend behavior.
Stepping back and observing the bigger picture this looks like a very mixed structure. Prices have rallied a ton over the past month and a half. Many trends remain pointed lower and those that are looking strongest tend to be more Defensive in nature (XLV, XLP, XLU).
Financials lagging is a bit of an issue for the Bull case, but the potential for Semiconductors and Industrials to reclaim broken support and form higher lows could be enough stabilization for the market to gain some structural footing.
We won't know what we really have in terms of a healthy recovery until we see a multi-week pullback/digestion. How participants respond to some bad news and poorer price action will be very important to watch. Do they just dump everything and assume this was simply a trade-able bounce, or do they come in with sidelined cash to support the market and set a higher low?
Keep an eye out for those higher lows to form. That will be the best indicator we have and requires zero outside "noise" to decipher.