These Four Sectors Look Ripe for a Pullback

 Next week marks the start of May.

 

Historically, the period between May and November is weak for the stock market. You've probably heard Wall Street advise investors to "sell in May and go away."

 

Here's a look at a few sectors you may want to "go away" from...

 

 Transportation stocks have broken down. The iShares Transportation Fund (NYSE: IYT) broke down from a rising-channel pattern (the blue lines on the chart). It has formed a declining channel (the red lines) with a series of lower highs and lower lows. If this downtrend continues, IYT could erase all its gains so far this year and trade back down to $95 per share over the next few months...

 

 

 As you can see from the following chart, the SPDR Industrials Fund (NYSE: XLI) is forming a similar pattern...

 

 

 The materials sector is rolling over, too. But the pattern is a little different. The SPDR Materials Fund (NYSE: XLB) looks like it's completing the right shoulder of a "head and shoulders" formation. If it fails to make a new high and then breaks below support at $37.30 per share, XLB could collapse to the next support zone near $35...

 

 

 One sector that isn't rolling over is utilities. In fact, utility stocks are among the market's best performers so far this year. But the move is starting to look parabolic...

 

 

Parabolic moves always end badly. They get overstretched to the upside and then suddenly turn lower. The resulting decline usually wipes out at least 50% (or more) of the move higher. So while utility stocks aren't showing the cautionary weakness of the other sectors, they're still vulnerable to a swift move lower.

 

– Jeff Clark