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These Four Sectors Look Ripe for a Pullback

By Jeff Clark
Thursday, April 25, 2013

 Next week marks the start of May.
 
Historically, the period between May and November is weak for the stock market. You've probably heard Wall Street advise investors to "sell in May and go away."
 
Here's a look at a few sectors you may want to "go away" from...
 
 Transportation stocks have broken down. The iShares Transportation Fund (NYSE: IYT) broke down from a rising-channel pattern (the blue lines on the chart). It has formed a declining channel (the red lines) with a series of lower highs and lower lows. If this downtrend continues, IYT could erase all its gains so far this year and trade back down to $95 per share over the next few months...
 
Transportation Fund IYT, Price per Share, March 2012 - March 2013
 
 As you can see from the following chart, the SPDR Industrials Fund (NYSE: XLI) is forming a similar pattern...
 
Industrials Fund XLI, Price per Share, March 2012-2013
 
 The materials sector is rolling over, too. But the pattern is a little different. The SPDR Materials Fund (NYSE: XLB) looks like it's completing the right shoulder of a "head and shoulders" formation. If it fails to make a new high and then breaks below support at $37.30 per share, XLB could collapse to the next support zone near $35...
 
Materials Fund XLB, Price per Share, March 2012-2013
 
 One sector that isn't rolling over is utilities. In fact, utility stocks are among the market's best performers so far this year. But the move is starting to look parabolic...
 
Dow Jones Utility Index Value, March 2012-2013
 
Parabolic moves always end badly. They get overstretched to the upside and then suddenly turn lower. The resulting decline usually wipes out at least 50% (or more) of the move higher. So while utility stocks aren't showing the cautionary weakness of the other sectors, they're still vulnerable to a swift move lower.
 
– Jeff Clark




Further Reading:

On Tuesday, Jeff shared three measures of economic activity that indicate the U.S. economy is in a recession. See the charts he's keeping his eye on – and learn why he says the conspiracy theorists may be right – here.

In The Daily Crux
Market Notes
Consumer spending keeps humming along... big retailers Target and Costco break out to new all-time highs.
 
"Private equity" companies Blackstone and Fortress are up 32%-plus already in 2013.
 
Semiconductor giant Intel breaks out to a six-month high.
 
Homebuilders PulteGroup and KB Home top a short list of stocks that are up 125%-plus in the past 12 months.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1578.79 +0.0% +15.1%
Oil (USO) 32.66 +2.5% -16.6%
Gold (GLD) 138.37 +1.1% -13.1%
Silver (SLV) 22.42 +1.1% -25.1%
U.S. Dollar 82.94 -0.1% +4.7%
Euro 1.30 0.0% -1.4%
Volatility (^VIX) 13.61 +1.0% -24.8%
Gold Stocks (^HUI) 284.61 +7.0% -34.0%
10-Year Yield 1.70 +0.0% -13.3%

World ETFs
Symbol Price
Change
52-Wk
Japan (EWJ) 11.51 +0.6% +21.2%
USA (SPY) 157.88 +0.1% +17.5%
Singapore (EWS) 13.90 +0.7% +13.4%
India (IFN) 21.15 +0.7% +11.7%
Taiwan (EWT) 13.61 +0.4% +9.3%
Israel (ISL) 14.38 +1.2% +8.3%
China (FXI) 36.48 +1.3% +0.8%
Canada (EWC) 27.17 +1.7% +0.4%
S. Korea (EWY) 56.45 +0.6% -1.8%
S. Africa (EZA) 62.50 +0.7% -3.6%
Lat.America (ILF) 42.80 +0.3% -3.6%
Russia (TRF) 14.25 +2.4% -8.7%

Sector ETFs
Symbol Price
Change
52-Wk
Construction (PKB) 19.55 +1.5% +43.8%
Media (PBS) 20.11 -0.1% +39.8%
Health Care (IYH) 99.49 -1.7% +31.0%
Biotech (PBE) 27.93 -1.7% +28.7%
Consumer Svcs (IYC) 99.25 -0.3% +26.8%
Telecom (IYZ) 26.26 -1.1% +24.3%
Financials (IYF) 68.90 +0.6% +23.1%
Utilities (XLU) 40.91 +0.3% +21.2%
Real Estate (IYR) 72.61 +0.3% +20.2%
Water (PHO) 22.03 +1.3% +20.0%
Defense (PPA) 22.94 +1.2% +19.2%
Insurance (PIC) 19.01 +0.1% +18.3%
Transportation (IYT) 108.70 +0.6% +17.7%
Retail (PMR) 28.92 +1.1% +17.7%
Industrials (IYJ) 80.31 +0.9% +16.7%
Software (PSJ) 29.15 +0.6% +12.1%
Nanotech (PXN) 6.69 +1.4% +10.6%
Big Tech (QQQQ) 69.42 0.0% +8.7%
Basic Mat (IYM) 69.25 +2.0% +2.9%
Semis (PSI) 14.97 +0.4% +0.5%
Alt. Energy (PBW) 4.58 +2.2% -4.8%

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