The S&P 500 SPDR (ARCA:SPY) put in a new high on February 28, aligning with March's pattern for being a strong month for stocks. Over the last 20 years, March has finished higher than where it started 74% of the time (reference 1), though the last twenty years have been bullish overall, so that will bias the number. Here are the sectors to watch this week.

Materials Select Sector SPDR (ARCA:XLB) pulled ahead of its former high ($46.57) last week, putting in a new high at $47.25. This follows the breakout of a pennant formation which occurred in the vicinity of that former high. The first upside target is at $47.85. The target is within reach this week, as the average weekly range is $1.21. A further target, which could take a number of weeks to hit, is $49.20. If the price proceeds lower from current levels and drops below $45.50, it indicates the potential for a double top and a false upside breakout.

Technology Select Sector SPDR (ARCA:XLK) is consolidating just above the former high of $36.05. This consolidation has taken the form of a flag, with the strong run-up representing the flag pole. This is typically a continuation pattern, providing targets of $37.25 and $38.15. With a weekly average range of $0.81 it may take a week or two for the first target, and multiple weeks for the second, to be reached. If the price drops below $35.75 a potential double top could be forming.

GlaxoSmithKline (NYSE:GSK) has a similar pattern to the technology ETF. After a strong surge of more than 10% off the February low, the price has consolidated between $56.73 and $55.46. If the price breaks above that consolidation, it signals another, likely sharp, advance. Targets are $59 and and $61.25. Support is present from $55.50 down through $54. A drop below $54 put the price back in a former range. Support for that long-term range is near $51.

Weatherford (NYSE:WFT) declined from a major trend high of $17.38 in November, to $13.07 in early February. Since that low, the stock has seen a more than 25% jump, closing at $16.67 on February 28. As the price rises, the $17 region is likely to act as strong resistance, creating an inflection point. Weakness in this area presents a shorting opportunity; with a stop just above the high (yet to be determined) in the resistance area. Downside targets are just above $15, $14 and $13. A continued strong rally above the area means another uptrend is in place, and buying opportunities occur on pullbacks.

The Bottom Line

These sectors have already broken above former highs, and are therefore current leaders. Leadership often changes though, especially in the short-term; what was strong last week may not be strong this week. Despite making new highs, these sectors (and the S&P 500) and stocks are still in proximity to former highs, which means if the price falls from here, there is potential for a double-top topping pattern. Risk can be managed using stop losses and assuring position sizes are not too large for the account or personal risk tolerance.

1. : ---adjust to 20 years, then change chart type to Histogram.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Related Articles
  1. Trading Strategies

    The Pioneers Of Technical Analysis

    Every time an investor talks about getting in low or picking entry and exit points, they are paying homage to these men.
  2. Forex Education

    Technical Analysis Works In Forex Markets

    Technical analysis is a hotly debated topic. Discover evidence showing that it works in forex markets.
  3. Forex Education

    How To Interpret Technical Analysis Price Patterns: Triple Tops And Bottoms

    Triple and double tops and bottoms may be tough to spot, but once you learn them, they can be powerful patterns.
  4. Trading Strategies

    Introduction To Technical Analysis Price Patterns

    To "find your game" in technical analysis, you need to be able to recognize reversals and continuations as they form.
  5. Investing

    Using Technical Analysis In The Gold Markets

    The quest for this shiny commodity has made millionaires of paupers and, on the flip side, ruined many an investor.
  6. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  7. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  8. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  9. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  10. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
Trading Center