Dow Theory And Tech Leadership Drives Most Sector ETFs Higher

The S&P 500 is divided into 11 sectors and each sector can be traded using its own exchange-traded fund. The Technology Select Sector SPDR ETF is the outperformer year-to-date. This sector includes semiconductors, which are leaders in the 21^st century as almost every consumer product contains computer chips.

Going back 100 years before the semiconductor was invented, Dow Theory (analysis of the relationship between the Dow Jones Industrial average and the Dow Jones Transporation Average) ruled the stock market. Today, the stock market is moving higher on the back of a Dow Theory buy signal as the Materials Sector SPDR ETF and iShares Transportation Average ETF set new all-time intraday highs on Friday.

The Energy Select Sector SPDR ETF still has a negative but oversold weekly chart, while the Financial Select Sector SPDR ETF shows a potential double-top.

Scorecard For The 11 S&P 500 Exchange-Traded funds

SPDR Dow Jones REIT ETF (RWR)

The weekly chart for the REIT sector ETF ($92.58 on July 14) is negative with the ETF below its five-week modified moving average of $92.75. The 200-week simple moving average is the “reversion to the mean” at $88.24, last tested during the week of Feb. 12, 2016 when the average was $81.06. The 12x3x3 weekly slow stochastic reading declined to 50.75 last week, down from 54.89 on July 7.

Buy weakness to the 200-week simple moving average at $88.24. Sell strength to my monthly, semiannual, quarterly and annual risky levels of $93.46, $97.61, 102.58 and $112.38, respectively.

Materials Sector SPDR ETF (XLB)

The weekly chart for the Materials Sector ETF ($55.25 on July 14) is positive with the ETF above its five-week modified moving average of $53.97. The 200-week simple moving average is the reversion to the mean at $47.71, last tested during the week of July 1, 2016 when the average was $44.51. The 12x3x3 weekly slow stochastic reading rose to 73.95 last week, up from 71.98 on July 7.

Buy weakness to my quarterly value level of $47.60. My semiannual pivot is $55.26. Sell strength to my monthly and annual risky levels of $57.70 and $61.72, respectively.

Industrial Select Sector SPDR Fund (XLI)

The weekly chart for the Industrial Sector ETF ($69.43 on July 14) is positive but overbought with the ETF above its five-week modified moving average of $68.07. The 200-week simple moving average is the reversion to the mean at $55.97, last tested during the week of Jan. 22, 2016 when the average was $47.92. The 12x3x3 weekly slow stochastic reading ended last week at 86.07, above the overbought threshold of 80.00.

Buy weakness to my quarterly value level of $65.11. My semiannual pivot is $69.69. Sell strength to my annual and monthly risky levels of $70.05 and $73.68, respectively.

Consumer Discretionary Select Sector SPDR ETF (XLY)

The weekly chart for the Consumer Discretionary Sector ETF ($90.19 on July 14) is neutral with the ETF above its five-week modified moving average of $89.76 The 200-week simple moving average is the reversion to the mean at $75.11. The 12x3x3 weekly slow stochastic reading ended last week at 57.68, down from 62.60 on July 7.

Buy weakness to my quarterly value level of $87.57. Sell strength to my monthly, annual and semiannual risky levels of $95.85, $97.00 and $97.38, respectively.

Consumer Staples Select Sector SPDR ETF (XLP)

The weekly chart for the Consumer Staples Sector ETF ($54.72 on July 14) is negative with the ETF below its five-week modified moving average of $55.25. The 200-week simple moving average is the reversion to the mean at $49.07. The 12x3x3 weekly slow stochastic reading ended last week at 35.76, down from 46.05 on July 7.

Buy weakness to the 200-week simple moving average of $49.07. My monthly pivot is $55.26. Sell strength to my semiannual and annual risky levels of $57.86 and $58.03, respectively.

Energy Select Sector SPDR (XLE)

The weekly chart for the Energy Sector ETF ($65.40 on July 14) remains negative but oversold with the ETF below its five-week modified moving average of $65.74. This ETF is below its 200-week simple moving average or reversion to the mean of $76.07 last tested during the week of Dec. 16, when the average was $77.65. The 12x3x3 weekly slow stochastic reading ended last week at 17.64, still below the oversold threshold of 20.00. A close this week above $65.74 with momentum rising above 20.00 would make the weekly chart positive.

Buy weakness to my quarterly value level of $57.58. Sell strength to my semiannual, monthly and annual risky levels of $70.39, $70.72 and $95.44, respectively.

Financial Select Sector SPDR ETF (XLF)

The weekly chart for the Financial Sector ETF ($24.92 on July 14) is positive with the ETF above its five-week modified moving average of $24.35. The 200-week simple moving average is the reversion to the mean at $19.65, last tested during the week of July 1, 2016 when the average was $17.58. The 12x3x3 weekly slow stochastic reading rose to 74.76 last week, up from 67.93 on July 7.

Buy weakness to my annual and quarterly value levels of $23.65 and $22.47, respectively. My semiannual pivot is $24.35. Sell strength to my monthly risky level of $27.70. Note that this ETF is below its June 2007 high of $30.83.

Utilities Select Sector SPDR ETF (XLU)

The weekly chart for the Utilities Sector ETF ($51.92 on July 14) has a negative weekly chart with the ETF below its five-week modified moving average of $52.41. The 200-week simple moving average is the reversion to the mean at $45.35. The 12x3x3 weekly slow stochastic reading ending last week at 47.27, down from 60.79 on July 7.

Buy weakness to my annual value level of $50.72. My semiannual and monthly pivots are $51.98 and $52.13, respectively. Sell strength to my quarterly risky level of $56.64.

Health Care Select Sector SPDR ETF (XLV)The weekly chart for the Health Care Sector ETF ($80.13 on July 14) is positive but overbought with the ETF above its five-week modified moving average of $78.32. The 200-week simple moving average is the reversion to the mean at $67.85. The 12x3x3 weekly slow stochastic reading ended last week at 83.53, which is above the overbought threshold of 80.00.

Buy weakness to my quarterly value level of $70.42. My annual pivot is $78.09 with my monthly pivot of $81.00. Sell strength to my semiannual risky level of $87.40.

Technology Select Sector SPDR ETF (XLK)

The weekly chart for the Technology Sector ETF ($56.86 on July 14) is neutral with the ETF above its five-week modified moving average of $55.58. The 200-week simple moving average is the reversion to the mean at $42.76, last tested during the flash crash of Aug. 24, 2015 when the average was $34.22. The 12x3x3 weekly slow stochastic reading ended last week at 64.03, down from 66.90 on July 7.

Buy weakness to my semiannual, annual and quarterly value levels of $55.95, $55.49 and $53.92, respectively. Sell strength to my monthly risky level of $57.46.

iShares Transportation Average ETF (IYT)

The weekly chart for the Transportation Sector ETF ($175.40 on July 14) is positive but overbought with the ETF above its five-week modified moving average of $170.52. The 200-week simple moving average is the reversion to the mean at $147.28, last tested during the week of July 8, 2016 when the average was $132.92. The 12x3x3 weekly slow stochastic reading ended last week at 88.74, well above the overbought threshold of 80.00.

Buy weakness to my quarterly value level of $158.89. Sell strength to my semiannual, annual and monthly risky levels of $181.18, $182.54 and $187.91, respectively.

Methodology

Investors should focus on the basic technical analysis tools focusing on weekly charts, and the value levels at which to “buy on weakness” and risky levels at which to “sell on strength.”

When looking at weekly charts, keep an eye on the 200-week simple moving averages shown in green. Investors should consider this level as the "reversion to the mean," an investment theory that the price or an index, stock or ETF, will eventually return to a longer-term simple moving average, and the 200-week is simple to track. A ticker trading above its reversion to the mean will eventually decline back to it on weakness. Similarly, a ticker trading below its reversion to the mean will eventually rebound to it on strength.

When reading a weekly chart, you will see the five-week modified moving average in red. At the bottom of the graph from left to right, you will see a measure of technical momentum. I advocate the 12x3x3 weekly slow stochastic, which scales from 0.00 to 100.00. Readings rising or overbought above 80.00 are positive. Readings declining of oversold below 20.00 are negative. A technical buy signal occurs when stochastics rises above 20.00 with the ticker ending the week above its five-week modified moving average. A technical sell signal occurs when stochastics falls below 80.00 with the ticker ending the week below its five-week modified moving average.

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