Sector Spotlight: ETFs Testing Resistance

Market Recap For July 5th, 2022

Somewhat of a wild day yesterday, as the major indices fell around 2 percent right out of the gate, only to push higher all day long.

The past three days appear to be hammering out a pullback low, which should eventually lead to another recovery rally high.

Yesterday’s Sector Performance

Communication Services and Discretionary stocks ended firmly in the green.

Energy, and previous leader Utilities, struggled all day long.

Five-Day Sector Performance

Staples is the only sector close to getting back into the green.

Energy and Materials are the deepest in the red.

ETF Trade Watch

Even though the past three days have been quite the chop fest, most signs still point towards a higher move.

If that forecast holds up, then the sectors that led yesterday should lead again, and that favors the XLC and XLY.

Communication Services Select Sector SPDR (XLC)

For the past month, XLC has been trading range bounce and sideways, meaning a breakout or breakdown could be looming. Given the downward channel of the chart for XLC, traders should watch for the price to rise to the resistance level and reject as it has in the past. Although we are in a bear market, bullish rallies can take place, if only for a few days, traders should always take this into account.

Consumer Discretionary Select Sector SPDR (XLY)

XLY has also displayed a clear downward trend, however, like XLC, has traded mostly sideway for the past month. This can be a nightmare scenarios for traders trying to trade the current market as the sideways movements eats away are your position through day decay. The best strategy is to look for testing of support and resistance levels that give the best risk vs. reward. As prices rise, they will test resistance at the upper end of the channel and if they do not trade above this level, trader should expect a reject.