Disappointing guidance from Cisco Systems (CSCO) and Wal-Mart (WMT) combined with a spike in Treasury yields triggered a massive selloff that saw the major indices lost more than 1 percent in Thursday trading session. The 10-year Treasury yield jumped to 2.82 percent, its highest level in two years, before pulling back to 2.75 percent.
All key S&P sectors closed firmly in negative territory, led by techs and consumer discretionary. As such, the Technology Select Sector SPDR (XLK) fell 1.61% to 31.85. Below is an updated look at a trade in XLK. The ETF had outperformed the market in recent days and is at an interesting spot.
The graphic below is from our “U.S. Market ETF Trading Map”, which show the near-term technical bias and trading ranges for XLK. As shown, the underlying is in a short-term bullish trend when the price bars are painted in green. The underlying is in a short-term bearish trend when the price bars are painted in red. The yellow bars identify period of neutral or sideways trading pattern. Additionally, the light-blue shading represents the short-term trading range. A move above or below that range is considered overbought (as represents by the red shading) or oversold (as represents by the dark-green shading). Readings above or below the red and green shaded areas are considered extremely overbought or extremely oversold.
Chart 1.1 – Technology Select Sector SPDR (daily)
As indicated in the above chart, our “U.S. Market ETF Trading Map” rates XLK as a Buy. XLK had been trending rapidly higher over the past few days after the early August correction tested and respected support at the mid-July breakout point near 31.80. Thursday’s massive bearish engulfing candlestick indicated that XLK might have switched to a new downtrend. Momentum indicator shifted lower from near overbought zone, suggesting further short-term weakness likely. This increases the probability for a test of key technical support at the trend channel moving average…Click here to read more.
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