Sector ETFs in Head and Shoulders Formation

Several sector ETFs have formed head and shoulders patterns, or are sitting beneath a cluster of moving averages. Considering the increased selling activity of late, the frequency of this pattern through several sectors should be a strong warning of further downside to come. First, many people are watching the head and shoulders in S&P charts. Personally I don't think it's the cleanest pattern, but here's a look at SPY (these charts are taken from approximately 30 minutes before the close):



- XLI is much cleaner, and price broke below the neckline today. Also note the declining 200 day moving average.



- IYT: Not really a great h&s, if one at all, but certainly a weak chart, and also worth looking at for those who give credence to Dow theory.



- IYR: A cleaner h&s, but not yet broken. I think it's just a matter of time. Also note the 50 and 200 day moving average clustered above current price, providing resistance.



- XLF: Price is on the verge of breaking key support.



So that's the industrials, transports, real estate, and financials in some real trouble here. If we look at commodity-related ETF's, many have already broken down, and if anything are oversold. Given that we've had some big selling on Thursday and today, an oversold bounce may be due for tomorrow. Looking at the slightly longer term, it's difficult to see the market rally for long under these circumstances.

Here's some potential short picks:

- WYN



- ACS



- SBUX



- SAH



- CHS



- ISLE



- FL



- OFG



- GES



- BKE



Most of the above are companies that have risen high above the March lows, and rely on consumer spending.