SPDRs Approaching Previous Highs

04/27/11 12:08:17 PM

by Chaitali Mohile

The Industrial Select Sector SPDR along with few other sector indexes have moved closer to the prior top.

Security: XLI, XLB, XLK, XLV,XLE
Position: N/A

An overheated downtrend of the Industrial Select Sector SPDR (XLI) geared up a reversal rally in 2009. The sector index has covered the entire distance of more than 15 points in one and a half years. The peak formed in 2008 can be considered to be a resistance area for the current bullish rally of XLI. We can see in Figure 1 that the index is very close to its previous high resistance. The average directional index (ADX) (14) is developing a new uptrend, which indicates a strengthening of the existing bullish rally. The relative strength index (RSI) (14) is surging upward in an overbought area. Therefore, XLI could breach the prior high at 38 levels. There could be huge bearish pressure against the resistance line. Thus, traders with long positions should stay cautious at the previous high.

FIGURE 1: XLI, MONTHLY. The index has moved very close to the previous peak of 2008. The price action has to be observed near the resistance level.

Graphic provided by: StockCharts.com.

Similarly, few other sector indexes like Material Select Sector (XLB), Technology Select Sector (XLK), and Health Care Select Sector (XLV) have also surged toward their previous high levels. The Energy Select Sector (XLE) and the Consumer Discretionary Select Sector (XLY) can also be on this list. Both indexes have already moved in a developing uptrend, so they are likely to breach the resistance line. Although XLY has broken historical resistance, it has to sustain at the new high.

Since the trend-indicating levels of XLB, XLK, and XLV are different, their price movement near the high pivot would vary. Some would consolidate while some would plunge few points from the resistance level. In addition, the broader financial market would influence the index movement as well.

On the other hand, the Consumer Staples Select Sector (XLP) has already surged to a new high, violating previous high resistance. You could refer to all these charts on a monthly time frame using the ADX (14) trend indicator. Therefore, those invested in these sectors should be on their toes for future positional trades.

Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company:	Independent
Address:	C1/3 Parth Indraprasth Towers. Vastrapur
	Ahmedabad, Guj 380015
E-mail address:	chaitalimohile@yahoo.co.in
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TECHNICAL ANALYSIS

SPDRs Approaching Previous Highs

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