Reading the Technical Tea Leaves

During the past several trading sessions, stocks certainly have been in rally mode. Right now, my reading of the technical tea leaves tells me that we may well have reached a short-term low in the markets.

If you look at the chart below of the S&P 500 Index, you'll see that we now are trading just below the short-term, 50-day moving average (blue line). If we break above this technical trigger point, we could be in for a continued move to the upside.

If, however, we fail to breach the 50-day moving average, and if we slide back down below 860 on the S&P 500, it could well be a sign that the bear has reached up and pulled us back into his lair.

Whatever happens with the broad market indices like the S&P 500, we must always remember that certain sectors of the market march to the beat of their own drummers. 

Two sectors that have caught my eye of late are energy and financials.

I recently commented on these two sectors in an appearance on the Fox Business Network. To watch this segment, click here.

Let's take a look at two exchange-traded funds (ETFs) that allow you to invest in energy, and in financials.

The first fund is the Energy Select Sector SPDR (XLE).

This fund includes the biggest and best energy companies around.  With XLE, you get exposure to a sector that appears as though it has found a bottom. And judging by the chart above, XLE is just about primed to breach its 50-day moving average.

The second ETF is the Financials Select Sector SPDR (XLF).

With XLF, you are getting the best of the beaten-and-battered financial sector, which also appears as though it has hit a short-term bottom. This fund also is climbing very close to its 50-day moving average.

By reading the technical tea leaves here, we can get a sense of when the time is right to jump back in to these -- and other -- market sectors.

In my ETF Trader advisory service, we've been watching both XLE and XLF closely for several weeks for just the right moment to buy. If you'd like to be with us when we take the plunge into these and other ETFs, click here.

Doug Fabian