A Trader's Toolbox - Sector ETFs
You can find new opportunities by scanning sectors for strength and weakness.
It continues to be a stock picker’s market with some names outperforming mightily while others just try to keep up.
There is no doubt that outperformance comes from selecting the right stocks.
Pick the right stock in the right sector and you could really find some momentum, especially if you get in at the right time.
That is why I wanted to spend some time analyzing sector performance.
That includes sharing my ETF watchlist and walking through a few charts full of opportunity.
And I think you might be surprised at a couple of the set ups taking shape.
To get a good sense of the landscape, I like to review this select group of ETFs.
By taking time to review each chart you will gain an understanding of what is going on across each major sector and where the momentum can be found.
This is something I recommend doing at least monthly. I like to review these every week.
Sector ETF Watchlist
There is a core set of ETFs that I like to utilize when reviewing sectors.
This includes a number of ETFs that I review to get a broader understanding of how markets are acting in addition to the core sector ETFs.
First, the core sectors:
Communication Services (XLC): This sector includes companies that facilitate communications and offer related content and information. Think social media companies, gaming, media, and entertainment.
Consumer Discretionary (XLY): This sector covers companies that sell non-essential goods and services, such as automobiles, housing, and entertainment.
Consumer Staples (XLP): This sector includes companies that produce essential items like food, beverages, and household goods.
Energy (XLE): This sector comprises companies involved in the production and distribution of energy, including oil, gas, and renewable energy.
Financials (XLF): This sector includes banks, insurance companies, and real estate firms.
Health Care (XLV): This sector includes companies in the healthcare and biotechnology industries.
Industrials (XLI): This sector includes companies that manufacture and distribute goods, excluding food and drugs.
Materials (XLB): This sector includes companies that discover, develop, and process raw materials.
Real Estate (XLRE): This sector includes companies involved in real estate development management, and REITs.
Technology (XLK): This sector includes companies that create and distribute technological products and services.
Utilities (XLU): This sector includes companies that provide basic utilities like electricity and water.
I like to add a few more to the list:
Biotech (XBI): Invests in stocks of companies operating across health care, pharmaceuticals, biotechnology and life sciences sectors.
Regional Banks (KRE): Invests in stocks of companies operating across financials, banks, regional banks sectors.
Transportation (XTN): Invests in stocks of companies operating across industrials, transportation, air freight and logistics, ground transportation, airlines, ports, and railways.
Semiconductors (SMH): Invests in stocks of companies operating across information technology, semiconductors and semiconductor equipment sectors.
This collection of fifteen ETFs can be reviewed to understand which sectors are leading, which are lagging, which are breaking out, and which are breaking down.
Once you’ve identified the sectors you are interested in, you can trade the ETF or you can dive into it’s holdings to find trades in specific stocks.
Sectors Making a Move
I highly recommend reviewing multiple time frames as often as possible whether you are reviewing ETFs or stocks.
Zooming out to look at the weekly and monthly charts can provide added perspective.
Zooming in to the four-hour and one-hour charts can give insight on recent changes in short term trends.
First up, the daily candles for XLRE.
The real estate sector is sensitive to rates and the idea that we will see rate cuts later this year is a positive for many of the names you will find in this ETF.
I like the bounce off of anchored volume weighted average price (AVWAP) from the October 2023 low.
Also notice the higher lows being formed, now looking to make a higher high and potentially retesting 40.75. I am looking for more upside here.
Now take a look at this bull flag that has formed for the XLC 4-hour candles.
Shares broke out of the range, clearing well above 80.22 and spent the end of last week consolidating. A push to $85 seems likely which could be a good sign for the top two holdings META and GOOGL.
There are a number of other interesting names in the space, including NFLX and TMUS that are worth taking a look at.
I might be considering both for a trade. This week should give us the information we need to see if the communications sector can continue the power move.
I hope this helps you with your trading process.
Have a great start to your week!
-Nate
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This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.
Now i have a new watchlist. Thanks mate. I was missing this piece of information.