Two sectors on breakout watch

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This post is intended for educational purposes and should not be considered a trading recommendation.

Two sector funds may be on breaking out as bullish sentiment returns to the stock market.

The SPDR Materials ETF (XLB) and SPDR Healthcare ETF (XLV) spent the last 2-1/2 months below their trading ranges from mid-March. But yesterday both pushed above those levels and have found support above their 50-day moving averages. That could make some chart watchers think intermediate-term momentum has turned higher.

Gains have been fairly widespread for member stocks in both sectors, with few clear news catalysts. That may suggest broader programmatic buying as money flows back into equities. (Click here for our post on the bullish pattern in technology last week, and here for our alert on copper.)

Given the positive economic backdrop, there’s reason to think investors may seek value in other cyclical sectors that are still range bound. Those could be the SPDR Financial ETF (XLF) — especially with the Federal Reserve expected to raise interest rates next week — and SPDR Industrial ETF (XLI).

SPDR Health Care ETF (XLV) showing breakout through mid-March level. See yellow rectangle for moving-average crossovers.
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.