Chemicals > Mining In Toxic Materials' Space

JC Parets
January 23, 2020

From the desk of Tom Bruni @BruniCharting

Thank you to everyone who responded to this week's mystery chart.

No mixed opinions this week, almost everyone saw the pullback into support as a successful breakout retest and was a buyer.

With that as our backdrop, let's take a look at this week's chart. 

The original chart was the ratio of Steel Stocks/Basic Materials (SLX/XLB), but inverted. So the chart everyone wanted to buy on a retest of support, was actually looking to sell a test of resistance.

And that's where we are today. Stuck below overhead supply.

Click on chart to enlarge view.

Essentially what this is telling us is that the Metals & Mining subsector (which comprise 93% of the SLX ETF) is likely to continue underperforming the Chemicals subsector (which comprise 72% of the XLB ETF) going forward. Here are the breakdowns from Koyfin's holdings analyzer.

This all comes within the context of the Materials sector, across all market-cap segments, remaining a dog. There has been no reason to be overweight this sector and there remains little reason to believe this long-term downtrend is coming to an end anytime soon.

These ratios tried to base over the last year, but are now making new lows in the Mid/Large-Cap ratios, and getting close in Small-Caps.

Despite the structural change in Precious Metals and Commodities as a group, the Metals & Mining subsector continues its struggle to gain traction on an absolute and relative basis.

The SLX/XLB is another piece of evidence that this theme remains intact. The same story is told in XME/XLB, XME/SPY, etc. Take a look for yourself.

Bottom Line: Basic Materials are struggling, but if you have to be in the space it looks like the Chemicals subsector is less toxic...at least as of today.

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Thanks for reading and please let us know if you have any questions!

Allstarcharts Team

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