The bulls have moved back into the driver seat over the past few months, as a good deal of technical damage was repaired during the summer rally.
It appears that the weakest stocks have at least stopped falling as growth indexes have transitioned to more constructive, base-building action since late Q2.
And, more recently, the strongest sectors during the current cycle have reclaimed key levels.
We’re talking about materials rallying back into their old range and energy stocks resolving above a shelf of former highs.
As both cyclical sectors are now back above our risk levels, we are looking for the strongest stocks to buy to express a bullish thesis on these groups.
When we think about the strongest stocks within materials, the coal industry and its recent resilience is top of mind.
We see no reason why the relative strength from these stocks shouldn’t continue, so let’s dive in and outline some of our favorite charts in the space.
Before we do that, here’s our equal-weight custom index, which includes the largest coal stocks listed on US exchanges:
This is a great example of the characteristics we want to see when we’re looking under the surface for opportunities in the materials sector. Above all else, we want to buy stocks and industry groups that are above their 2018 highs.
In the case of our coal index, prices successfully retested a shelf of former highs from 2018 back in July. In the month and a half since defending this key level, prices have rallied aggressively, and coal stocks have shown impressive leadership.
Seeing demand show up exactly where we would expect is highly constructive for the entire space and suggests that this multi-year base breakout is a valid one.
As long as we’re above the 2018 highs, coal is a group that we want to lean on for exposure to natural resources and commodity stocks.
Let's hit the charts.
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