XLU Utilities Select Sector SPDR ETF http://www.poorbrothertom.com/blog/taxonomy/term/21/atom/feed 2008-09-28T23:30:39-04:00 Sector Analysis using ETFs http://www.poorbrothertom.com/blog/posts/2008/05/26/sector_analysis_using_etfs 2008-05-30T01:44:55-04:00 2008-09-28T23:30:39-04:00 Dave Since over half of a stock's performance is due to its sector, it is important to have a method to evaluate broad sector and industry trends. As readers of my previous posts may guess, I am quite partial to IBD's industry ranking feature which ranks 197 industry sub-groups according to six month price performance. This level of detail is hard to emulate easily at home, but even simpler systems can give you insight into the market and help you make better informed trades. One easy way to gauge broad sector trends is to track sector ETFs versus a broad market index.

]]> Since over half of a stock's performance is due to its sector, it is important to have a method to evaluate broad sector and industry trends. As readers of my previous posts may guess, I am quite partial to IBD's industry ranking feature which ranks 197 industry sub-groups according to six month price performance. This level of detail is hard to emulate easily at home, but even simpler systems can give you insight into the market and help you make better informed trades. One easy way to gauge broad sector trends is to track sector ETFs versus a broad market index.
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The Select Sector ETFs divide the S&P 500 into 9 sectors:

  1. Materials (XLB)
  2. Health Care (XLV)
  3. Consumer Staples (XLP)
  4. Consumer Discretionary (XLY)
  5. Energy (XLE)
  6. Financial (XLF)
  7. Industrial (XLI)
  8. Technology (XLK)
  9. Utilities (XLU)

Charting the ratio of the sector ETF to the S&P 500 provides a convenient visualization of the trend. If the ratio is increasing, then the sector is outperforming the broader market; if it is decreasing, it is underperforming. Of course, you can use moving averages (MA) as you would with a stock: Is the sector trading above or below the MA? Finding support or resistance? Is the MA sloping up or down?

Below are these sector ETFs charted over the past year. Energy (XLE), Materials (XLB), and Industrials (XLI) have been on bullish tears while the Financials (XLF) have been free-falling Tom Petty style. Of course, this is probably not news to you, informed reader. However, were you aware of the steady downtrend in the health care sector (XLV) since the beginning of the year? How about the fact that tech stocks (XLK) have been performing well again in the new fledgling uptrend?--a trait you like to see at the start of a new bull market. Or that consumer discretionary stocks (XLY) may have bottomed after a long downtrend since they're trading about on par with the broader S&P and have regained some support at the 20 week MA?

[Chart: Materials ETF]

[Chart: Health Care ETF]

[Chart: Consumer Staples ETF]

[Chart: Consumer Discretionary ETF]

[Chart: Energy ETF]

[Chart: Financials ETF]

[Chart: Industrials ETF]

[Chart: Technology ETF]

[Chart: Utilities ETF]

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