Besides Energy, Consumer Staples and Real Estate are next worst stock sectors. This is what they are printing. Keep an eye in case they could be your early bear indicator. XLP and XLRE charts.
Back on 21 September, I wrote in this story ‘If weakness is the new trend, Retail could be the leading edge‘ that XLP fulfilled 3 out of 5 price features that define a high probability reversal pattern.
In my opinion, 3 out of 5 price features that define a high probability reversal pattern is visible in this chart of XLP – roadmap, resistance and chart pattern. The resistance here is prominent because of it’s 15 month duration. That spike in the last quarter that failed to break July 2016 top confirms the latter as the true resistance which also suggests that this year’s spike could be a blow-off top.
Maybe all of these signs are no big deal but it would be interesting alignment with FOMC’s announcement last night that quantitative tightening will start next month. Retail could be the leading edge of weakness here if there is going to be any correction.
XLP rising trend meets 15 months resistance | Source: TradingView
That head and shoulders bearish reversal pattern was confirmed by a neckline break. Next test for XLP is a 9-year supporting trend line.
XLP weekly chart, head and shoulders neckline broken, sitting on 9-year trend line
Keep an eye on your risk indicators
Global stock markets are now in a runaway boom with multiple major stock indices at unprecedented new highs. The more carried away the market is, the more likely individual investors are going to toss caution to the wind. I would not be surprised if there are individuals catching every dip now thinking ‘it’s now or never’.
Well good luck. You don’t have to be contrarian but the minimum responsibility is to keep an eye on risk indicators.
XLP sits on a 9-year support. As a rule: the bigger a pattern/the longer a trend line, the more significant it is. The more likely it is to hold yet the more drastic outcome if is broken.
In very simple words, this is my message.
Sectorspdr ETFs 2017 YTD performance | Source: Sectorspdr
- The weakest US sector is ‘Energy’ but never mind that – this story is not about energy.
- Next weakest sector is ‘Consumer Staples’ represented by XLP.
- Third weakest sector is ‘Real Estate’ represented by XLRE.
- The more sectors go into red, the more likely the market is going to tip over.
- XLP is sitting on a 9-year support; what happens if XLP crosses that line?
- XLRE is building a big pattern; what happens if XLRE turns out to distributing?
XLRE weekly chart, year-long channel
This story ‘8 Singapore blue chips that broke decade-long trend lines‘ written in July 2015 just before 24 August Black Monday rout is good for reference.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh's Twitter account @sohtionghum
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"I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."