XLRE next S&P500 sector to tip into red?
If S&P500 continues to weaken, Real Estate (XLRE) could be next sector to tip into red. Chart pattern shows a bearish divergence and rising wedge that signals potential reversal.
XLRE, XLP and XLF 3 weakest ‘winners’
Using performance of Sector SPDR ETFs as a guide, apart from the Energy sector represented by XLE (XLE ‘buyer’s remorse’, loses post-Trump election gains) which is down over 17% since the beginning of the year, these are the next three weakest S&P500 sectors:
- Financials XLF up 5.89% YTD
- Consumer Staples XLP up 6.75% YTD
- Real Estate XLRE up 4.25% YTD
If overall weakness continues, anyone of these could be the next to go into red. XLRE is weakest at the moment.
If we compare their performance from the beginning of 2016 instead of 2017, then Real Estate’s weakness becomes even more prominent.
XLRE weakest of the lot; bearish chart pattern
As can be seen from this overlay below, a bearish divergence shows up in XLRE’s performance. While it’s peers are making new highs this year, XLRE could not even beat it’s own high printed in July last year.
XLRE chart pattern suggests a rising wedge (reversal) pattern in progress.
According to Investopedia,
Conversely, a rising wedge is a bearish pattern that signals that the security is likely to head in a downward direction. The trendlines of this pattern converge, with both trendlines slanted in an upward direction.
Again, the price movement is bounded by the two converging trendlines. As the price moves towards the apex of the pattern, momentum is weakening. A move below the lower support would be viewed by traders as a reversal in the upward trend.
As the strength of the buyers weakens (exhibited by their inability to take the price higher), the sellers start to gain momentum. The pattern is complete, with the sellers taking control of the security, when the price falls below the supporting trendline.