Gold Glittering:

The materials group has received a nice boost from the gold names. Whether one wants to debate if that is a good sign or not it is irrelevant. PRICE action is omnipotent. Below is the ratio chart with the XLB over the S&P 500, and it could be on the verge of a powerful breakout in a pattern nearly 6 months long. If market downtrend intensifies, investors may not be able to show decent absolute returns, but if one puts capital to work in gold/materials they could outperform on a relative basis. Stick to the leading names and avoid some of the beaten up aluminum and steel plays, like AA and X lower by 56 and 64% respectively from their most recent 52 week highs.

Steel Slumping Versus Gold:

Steel names have been battered this year, with former leader NUE lower by 23% from its most recent 52 week highs. Others have been hit harder, with MT now 56% off its most recent yearly peak, and keep in mind it underwent a reverse stock split, never a good thing. Some have acted well, with RS just 8% off most recent highs, and has advanced SIX consecutive times after earnings. Contrast that with some of the best in breed gold names like FNV and RGLD just 2% off their highs (latter has declined just NINE times since the end of May!). Perhaps many will say the gold stocks saw this recent market implosion as it has been acting well BEFORE the turmoil. Either way expect gold to continue higher on its own, or against other materials like steel as the ratio chart below can attest to.

DAX Despondent:

Germany, the economic engine of Europe has been on life support. SAP a top tech name until recently is now 16% off most recent 52 week highs. Another leader in the benchmark is now in correction mode as ADDYY is off 10% from recent peaks, and Monday sliced its 50 day SMA in heavy volume, a line it had been above since the very first days of 2019. Below is the chart of BASF, and it paints a bearish picture. Its latest earnings reaction was as bad as it gets, as the name has its tentacles in just about everything. It speaks to the weakness within the materials, outside of gold and some commodity chemical names.

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