Sector Outlook:
The industrials have been holding their own very well, during this recent market uncertainty, and that type of action should be applauded. On a one month basis it is the second best major S&P sector performer out of 11, higher by more than 3%, lagging just energy. On the chart below their is something for the bulls and bears to admire. In tennis speak, it is still advantage bulls as the uptrend is alive and well, but their is some stalling action at the round 80 number, and the doji candle Wednesday suggests a breather may be in order. The largest component BA has masked some problems elsewhere in the fund, but overall names like CAT are holding their own. Others can not make the same claim. It was not long ago many were pounding the table on ZTO, being a Chinese play of course is not helping, but the stock is now 30% off recent highs made just this July. Other reliable industrials like WCN are looking somewhat fragile. As always try not to paint all industrials, or individual names in any other sector, the same and focus your buys on charts exhibiting relative strength and shun those doing the opposite.
Transport Influence:
The transport space makes up a good portion of the industrials, and the IYT is now back underneath an 8 month cup base breakout trigger, but the fund has to be given credit until it does not deserve it any further. It is still well above its rising weekly 50 day SMA, and is holding above the very round 200 figure. Like stocks, ETFs can find climbing above round figures difficult as witnessed below as it jumped above 200 on a weekly CLOSING basis the week ending 1/12 rising more than 4%, but it only lasted three weeks. The fund did not CLOSE above 200 again until the week ending 8/17, and has done so the last 8 weeks (CLOSED precisely at 200 week ending 6/15). The bulls obviously want former resistance to become support. FDX will have a big say as it is the ETF’s largest component making up nearly 13% of the fund. UPS used to be its red headed stepchild, but while both have performed similar in 2018, with FDX down 4% and UPS by 2%, the dividend yield on UPS is 3.1%, compared to FDX at 1.1%.
Examples:
One would have to been living under a rock not to be aware of the weakness in the homebuilders, and this was BEFORE the recent surge in rates. One would say perhaps they anticipated that, but PRICE action is omnipotent. The group came into the year on fire as the ITB rose 18 of 21 weeks ending between 9/1/17-1/19/18 (three down weeks all fell less than .7%). A bearish engulfing week the week ending 1/27 saw huge follow through the next 2 weeks as the ETF slumped 12.4%, both accompanied by the strongest weekly volume in almost 3 years. Even leaders that held up well into the teeth of the storm have finally succumbed with SITE down 18% the last 2 weeks and this one by 5.7% heading into Friday. Below is the chart of SUM and how it appeared in our Industrial Report from 9/24, and it has been chopped in HALF since highs made back in late January.