Macro Wrap – Cyclicals Join the Party

The main theme over the past 3 trading days has been the significant outperformance of cyclical sectors, after the 1st quarter was led by defensives.  While the defensive sectors have been making new bull market highs (when represented by XLV, XLP, and XLU) for the past 6 months, cyclicals have not shown the same strength.  But not all cyclical sectors are alike.  The recent rally has created some interesting breakouts and tests of resistance on the longer-term charts.  Here’s a chart summary of which sectors have had the strongest breakouts, and which are at important inflection points.

First, energy and materials have been leaders over the past week, after significantly underperforming in March and April.  Both sectors are right at 4 year resistance levels, when measured by XLE and XLB.

XLE:

4 year weekly chart of XLE, Courtesy of Bloomberg

4 year weekly chart of XLE, Courtesy of Bloomberg

XLB:

4 year weekly chart of XLB, Courtesy of Bloomberg

4 year weekly chart of XLB, Courtesy of Bloomberg

Technology is also at resistance, when measured by XLK.  It has been playing catch up for the past month after a weak start to 2013 (partly skewed by AAPL’s dismal 1st quarter).

XLK:

4 year weekly chart of XLK, Courtesy of Bloomberg

4 year weekly chart of XLK, Courtesy of Bloomberg

Meanwhile, the clear bull market leader among cyclical sectors has been the consumer discretionary sector, when represented by XLY, which has been making all-time highs on a consistent basis for more than a year (in fact, XLY is 40% higher than it was at the 2007 market top).

XLY:

4 year weekly chart of XLY, Courtesy of Bloomberg

4 year weekly chart of XLY, Courtesy of Bloomberg

Financials and industrials have also been at new bull market highs for most of 2013, when represented by XLF and XLI.  Industrials have been even stronger on a long-term basis – XLI has made a convincing new all-time high in the past 2 weeks.

XLI (I went back 7 years on this chart to show the 2007 top that was breached):

7 year weekly chart of XLI, Courtesy of Bloomberg

7 year weekly chart of XLI, Courtesy of Bloomberg

Financials won’t be making all-time highs anytime soon, but they broke out to new 4 year highs at the start of 2013, and have been strong ever since.

XLF:

4 year weekly chart of XLF, Courtesy of Bloomberg

4 year weekly chart of XLF, Courtesy of Bloomberg

 

In sum, consumer discretionary and industrials are the strongest of the group, both trading at new all-time highs.  Financials have also been a leader in 2013.  Energy, materials, and technology are right at crucial long-term levels, and those are the sectors I’ll be most closely watching to see how they react at these inflection points.  Their reaction over the next couple weeks is likely a tell for the continuation of the SPX breakout in the coming months.

 

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