XLK, XLE, XLB Setting Up Nicely

The Technology, Energy, and Materials sectors are setting up the best for a position trade. I would not buy these names here because I anticipate a pullback in the market. I think over the next few months these sectors will be in a position to launch a very nice rally.

XLK- Technology

XLE- Energy

XLB- Materials

Market Losing Momentum, In Congestion Zone

There is now a negative divergence in Advancers and Upvolume, along with multiple levels of resistance. I wouldn't be suprised to see the S&P fail around these levels.

2002 Nasdaq vs. 2009 Homebuilders

The S&P Homebuilder Index has been declining since early 2005, well before the market peaked in 2007. The issues in the real estate market bled into the financials, and eventually caused the worst decline in the stock market since the Great Depression. We can use the Homebuilder Index as a proxy for the real estate market, and track the portion of the market that "caused all the problems".

Below is a weekly chart of the S&P Homebuilder Index, with the relative strength line plotted in the lower portion of the chart. Since late 2007 the Homebuilders have started to stabilize relative to the rest of the market. This is important because the real estate market is going to need to recover before the rest of the market can sustain any positive action.

S&P Homebuilder Index
The same thing happened during the bear market that occurred at the beginning of this decade. The burst bubble in the early 2000's was caused by technology companies, which can be gauged by looking at the Nasdaq. In the chart below you can see that the Nasdaq's performance relative to the rest of the market had to stabilize before the market could start the next bull market.

Nasdaq- 2000-2003 Bear Market