Good morning,
This week, we’re taking the materials sector into Overtime. The sector is the smallest in the S&P 500 at just a 1.7% weight, but it was the biggest beneficiary of last week’s momentum crash, surging to a 4% gain in the holiday-shortened week.
The move was technically significant and backed up by strong breadth, so while it’s early (and the relative trend remains down), this is as sector that investors should have on their radar now, and at the individual stock level, there are already compelling long opportunities.
Today’s report will review:
The top-down technicals for the sector
Focused sub-sector ETFs
And top individual stocks
Top down view
The sector is finally back on the right side of its 200-DMA
The 200-day has been an important marker for XLB over the past 18 months and the sector finally broke through last Tuesday with a 2.6% gain, its best day since the April tariff pause. XLB pulled back to start this week but after hitting YTD highs, I expect any pullback to be short-lived. Support at the 200-day ($88.70), followed by the 50-DMA ($86.59 and rising).
XLB vs. SPX holding January lows but still below the 200-day
Ultimately, this chart keeps us honest. There’s signs of life, as XLB has recently bounced off its January lows relative to the S&P 500 and momentum is bullishly diverging on both daily and weekly time frames. But the trend is clearly down and we’re not going to be overweight a sector that is in such a clear relative downtrend vs. SPX. This is a top reason we own GDX (instead of XLB) in our ETF portfolios.
Recent breadth thrust should put investors on notice
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