No Place to Hide? I'm Asking Questions About Two Defensive Sectors

The healthcare and utilties sectors are considered to be defensive. Indeed the Health Care Select Sector SPDR ETF (XLV) and the Utilities Select Sector SPDR ETF (XLU) are supposed to rally when the rest of the market weakens.

I believe that the current path of least resistance for the S&P 500 is lower ( see my August 8 review). The first half of August was indeed a weak period for stocks but the decline is just beginning, in my opinion.

So why are the XLV and XLU not going up? If the broader market is going to decline shouldn't we see monies move into the defensive sectors? 

Technicians love to ask questions but they don't always have answers. Let's check out the charts and indicators. 

Healthcare

In the daily bar chart of the XLV, below, I can see that the shares are managing to stay above the 50-day and 200-day moving average lines but just barely. Prices have edged higher the past three months but the trading volume has not expanded to confirm the move.

The daily On-Balance-Volume (OBV) line has been in a decline from early May and tells me that sellers of XLV have been more aggressive than buyers.

The trend-following Moving Average Convergence Divergence (MACD) oscillator is just slightly above the zero line and may or may not cross to the upside for a buy signal. 

In the weekly Japanese candlestick chart of the XLV, below, I can see a very large consolidation pattern. This pattern looks like a large diamond pattern to me. Diamonds can be continuation patterns, which would mean that the uptrend continues or they can be a reversal pattern and we could soon see a decline begin.

Trading volume increases into the high of the pattern in early 2022 and then declines. The weekly OBV line declines from the middle of 2022 and tells me that traders have been more aggressive sellers for a long time.

The MACD oscillator has been oscillating around the zero line for at least the past year. 

In this daily Point and Figure chart of the XLV, below, I can see a potential upside price target in the $161 area but a trade at $142 is needed to refresh the uptrend. A trade at $126 could weaken the chart. 

Utilities 

Let's check out the XLU.

In this daily bar chart of the XLU, below, I can see a downtrend in place from December. The XLU is trading below the declining 50-day moving average line and below the declining 200-day line.

The trading volume increased in March when prices pulled back. The On-Balance-Volume (OBV) line has been weak since April and tells me that sellers of the XLU have been more aggressive than buyers.

The MACD oscillator is below the zero line but trying to make a cover shorts buy signal. 

In the weekly Japanese candlestick chart of the XLU, below, I see a bearish setup. Prices have been on a downward path since the middle of 2022. XLU trades below the declining 40-week moving average line.

The weekly OBV line has been weak since the end of 2021. The MACD oscillator is bearish. 

In this daily Point and Figure chart of the XLU, below, I can see a downside price target in the $57 area. 

Bottom-Line Strategy

There are times in the marketplace when defensive plays do not work. There are times when pretty much everything in the marketplace goes down. Remember 2008? I don't know if we are looking at a downdraft in the markets where there is no place to hide or what. Stay nimble.

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