Time to Put the Defense on the Field

On Jim's Notes last week I discussed the issue of the leadership in the broad markets as a challenge. I am seeing money rotate into the defensive sectors over the last 3-4 weeks. If we looked at charts of the healthcare sector we would see a solid break higher in iShares T DJ US Healthcare Index (NYSE: IYH) three weeks ago at $60.50. Look at iShares US Telecom Sec Index (NYSE: IYZ) and you see the bounce off the bottom of the trading range three weeks ago and a breakout on Tuesday. Utilities Sel Sect SPDR FD (NYSE: XLU) bounced off the bottom of a four month trading range three weeks ago and broke above the top on Monday. Throw in commodities and we see money flowing away from risk assets to more defensive positions.

Today I wanted to take a look at Powershares DB Base Metals Fund (NYSE: DBB). As you can see on the chart below the sector built a trading range (first box) and broke higher in October. Then it built a second trading from which it broke on Tuesday. The metals have moved up nicely and continue to look positive. If we dig below the surface we would find steel breaking higher the last two days along with cooper and other metals. This is one to keep on your watch list near term.

The agriculture stocks are breaking higher as well. A look at Market Vector Agribusiness ETF (NYSE: MOO) shows the push above resistance at $42 two weeks ago and an continued move higher. Watch for each of the defensive sectors to test the moves higher. If they hold the test of support, it would be a good entry point for owning them looking forward in 2010. As with any investment make sure you define you objective, risk tolerance and target before putting your money to work.