On a YTD basis, the industrials are just one of four major S&P sectors that are still negative in 2018, with the others being the financials, energy and materials. On a one month look back period the are the second worst performing group. Contributing to that weakness over the last month were the aerospace, defense and transportation services. But combating the overall softness there was strength witnessed in airlines, heavy construction and waste services. In todays report we will focus in depth on names that remained steadfast through the recent ugliness, including BAH, FIX, IR, WM and MTZ. The stocks that were able to sidestep the weakness did so for a reason, and should be the ones with less battle scars and therefore have stamina to see their share prices appreciate rapidly. From a seasonality perspective notice that November has CLOSED the month higher than when it started the last 4 years. It began this month right at the round 70 number and remains just above. If history holds consistent, there should be a wind behind the XLI’s back for the next couple weeks.
Rail Laggard Avoiding Technical Wreck?
The rails are often have a good pulse on the genuine health of the economy. Obviously they ship goods all around the country as their charts can give us a glimpse of the appetite of the consumer. Below is the chart of KSU and how it was profiled in our Industrial Report on 11/1. Before today it was in bear market mode, and the trade is still in play as the suggested stop was 97 and it never CLOSED underneath. Thursday it recorded a bullish engulfing candle, and it looks poised for yet another weekly CLOSE above the very round par number. The 100 figure has been influential as it was the area of a 10 month cup base breakout trigger taken out the week ending 6/16/17. This name is the laggard of the space, but could offer good risk/reward as it bounces off a key number and former breakout area. CP, CSX and NSC are all acting much better on a relative basis down between 5-8% from their most recent 52 week highs, as KSU trades 16% off its own highs.
The machinery group within the industrial sector has acted very firm in the wake of a tough October and it is no coincidence that they are behaving bullish presently. We always like to say that the longer the base, not only the greater the space on the breakout, but it makes the trade more success prone. Below is the chart of DCI and how it appeared in our Industrial Report on 11/1. One can quickly see the decisive break above a 9 month cup base trigger. Adding to the bullish narrative was the stand the stock was making at the very round 50 figure, with back to back weekly hammer candles with both trading under 50 intraweek, but CLOSING nicely ahead of the round number. The stock is up another .7% this week, and as of todays finish looks like yet another potential hammer candle depending of course on Fridays session. It has lost ground just 2 days this month so far and another cup base is taking shape as it looks ready to climb through its rising 50 day SMA here. The possible trigger is 59.53.