How to Trade the Select Sector SPDR Funds

Tickers in this article: XLB XLF XLI XLP XLY

NEW YORK (TheStreet) -- The fundamentals of the stock market are not as positive as they were at the end of July when I began to write articles covering sector rotations and the SPDR exchange-traded funds that track key stock market sectors.

A major factor in the weakening fundamentals was the yield on the 30-year Treasury bond, which rose from 2.439% on July 26 to 2.984% on Aug. 16.

Because of this increase, fewer stocks are now undervalued. On July 30, my Web site, ValuEngine, showed that 67.1% of all stocks were undervalued. Today 58.7% of all stocks are undervalued.

Technically, stocks as represented by the S&P 500 have become overbought on daily, weekly and monthly time horizons.

On Tuesday, the S&P traded to a new 2012 high at 1426.68, its best level since May 2008. It was still well off the October 2007 high of 1576.06, however.

Following are my "Buy and Trade" parameters for nine Select Sector SPDR ETFs.

The basic materials sector was 16.0% undervalued at the end of July and is 7.6% undervalued today.

My benchmark for this sector is the Materials Select Sector SPDR Fund , and its daily chart profile shows overbought momentum.

On July 31, I wrote "Trading the Undervalued Basic Materials Sector." XLB ($36.22) tested my monthly risky level at $36.61 on Tuesday where some profit-taking was justified. My annual pivot is $35.72, and my annual risky level is $37.93.

The industrial product sector was 4.5% undervalued at the end of July and is 0.5% undervalued today. My benchmark for this sector is the Industrial Select Sector SPDR , and its daily chart profile shows overbought momentum.

On Aug. 13 I wrote "Trading Industrial and Transportation Stocks." XLI ($37.02) traded as high as $37.39 on Tuesday vs. my annual and quarterly risky levels at $37.74 and $38.02, respectively. I do not show any nearby value levels.

The consumer discretionary sector was 6.6% undervalued at the end of July and is 0.6% overvalued today. My benchmark for this sector is the Consumer Discretionary Select Sector SPDR Fund , and its daily chart profile also shows overbought momentum.

On Aug. 14 I advised readers to "Book Profits in Consumer Discretionary Stocks." XLY ($45.18) is trading between my annual pivot at $43.17 and my monthly and quarterly risky levels at $47.52 and $50.12, respectively. My semiannual value level lags at $39.91.

The consumer staples sector was 11.7% overvalued at the end of July and is 10.2% overvalued today.

My benchmark for this sector is the Consumer Staples Select Sector SPDR , and its daily chart profile also shows overbought momentum. With XLP, we show that Tuesday was the "key reversal" day where the day's close was below Monday's low after setting a new multiyear high. On Aug. 6 I wrote "Book Profits in Overvalued Consumer Staples." XLP ($35.68) is trading between my annual and semiannual value levels at $32.87 and $31.34, respectively, and my monthly and quarterly risky levels at $36.06 and $37.64, respectively.

The oils-energy sector was 9.2% undervalued at the end of July and is 1.4% undervalued today. My benchmark for this sector is the Energy Select Sector SPDR , and its daily chart profile shows overbought momentum. On Aug. 1 I provided guidelines for Trading the Undervalued Energy Sector." XLE ($72.09) is above my monthly value level at $68.46, and this week's risky level is at $75.76.

The finance sector was 4.8% overvalued at the end of July and is 9.3% overvalued today. My benchmark for this sector is the Finance Select Sector SPDR Fund , and its daily chart profile shows overbought momentum. On Aug. 15 I wrote "Time to Book Profits in Financial Stocks: Opinion." XLF ($15.22) is below quarterly and annual risky levels at $15.50 and $15.59, respectively, but I do not show a nearby value level.

The medical sector was 8.1% overvalued at the end of July and is 5.9% overvalued today. My benchmark for this sector is the Health Care Select Sector SPDR Fund , and its daily chart profile shows declining momentum. On Aug. 8 I wrote "Book Profits on Health Care Stocks." XLV ($38.43) is above my annual value levels at $36.71 and $34.12, respectively. My monthly and quarterly risky levels are at $40.06 and $40.83, respectively.

The utilities sector was 12.9% undervalued at the end of July and is 14.6% overvalued today. My benchmark for this sector is the Utilities Select Sector SPDR , and its daily chart profile shows oversold momentum with the ETF below its 50-dey simple moving average at $37.17. On July 30 I wrote that investors should "Consider Taking Profits on Utility Stocks," and the high on Aug. 1 was $38.54. XLU ($36.89) is trading around my monthly pivot at $37.00. The 200-day simple moving average is $35.61, and the quarterly and annual risky levels are $39.89 and $43.70, respectively.

The computer and technology sector was 3.1% undervalued at the end of July and is 12.4% overvalued today. My benchmark for this sector is the Technology Select Sector SPDR Fund , and its daily chart profile shows overbought momentum.

With XLK we show that Tuesday was "key reversal" day where the day's close was below Monday's low after setting a new multiyear high. On Aug. 9 I provided "Buy and Trade" guidelines for "Trading Technology and Telecom Stocks." XLK ($30.58) is trading between my annual value level at $25.48 and my monthly and quarterly risky levels at $31.40 and $32.18, respectively. My annual pivot is at $29.93.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Tickers in this article: XLB XLF XLI XLP XLY