The industrials put in a decent session Wednesday, as it fell .5%, and was the third “best” performing major S&P sector. The XLI chart below does show a break below a bearish head and shoulders pattern today, but the question is was the move a false one? The ETF did register a doji, and it is not uncommon to see plenty of shorts taken out below the 200 day SMA. Its largest holding, BA, is swimming below its 200 day SMA, but not drifting far from it, and three of the last 7 sessions were also doji candles which gives an indication a bottom. The last 3 weeks have CLOSED unbelievably tight, all within just .35 of each other. And big moves often follow from that type of price action. However they often break in the direction in which they came from.
Bottom fishing is often an expensive exercise, but it is always good to monitor potential short term lows in meaningful names. Here we have a ratio chart comparing the IYT to the S&P 500, and it is not easy to miss the shortcoming referring to the former. A double bottom could be in place from the late March lows, which would negate the string of lower lows. Interestingly enough FDX and UPS, the third and sixth largest components in the ETF, recorded possible bottoming, spinning top candles. They are often adept in indicating softening in the prevailing trends. I am not suggesting buys here, but FDX in particular could be conveying that a China problem has been baked in. A lift in these two names could give the market a temporary jolt.
Never fall in love with a chart. As good as they look one must be able to part ways if its complexion starts to worsen. Below is a good example of that with the chart of SRCL, and how it appeared in our 5/21 Industrial Report. The stock ramped higher by 61.9% during a 14 of 18 week winning streak the weeks ending between 1/4-4/26 (some of the most violent moves come in bearish dead cat bounces). It has since resumed its downtrend now 36% off most recent 52 week highs, and a five week losing streak looks likely. Compared to leaders WM and WCN in the waste space, this name looks like it could be tossed into the garbage can, pun intended.