From the desk of Tom Bruni @BruniCharting
Tuesday I posted a Mystery Chart that got a lot of replies.
Most said you’d be buyers at current levels or on a pullback, but a number of you were skeptical of the recent move and would be avoiding or fading it.
The feedback I got was interesting, so let’s get right into the actual chart.
This week’s Mystery Chart was an inverted daily line chart of the Metals & Mining ETF relative to the S&P 500. Below is the corrected chart.
Prices have put in a multi-year top, remain below support and a downward-sloping 200-day moving average, and momentum is in a bearish range. All signs continue to point to under-performance in this market sub-sector.
Click on table to enlarge view.
Same thing goes for Steel, which is not seeing as much downside momentum, but still isn’t presenting any reasons to be long.
Coal is the worst of the group, recently making new lows and slowly grinding lower over time. Again, not a chart we want to be buying.
There is a lot of overlap in these ETFs so it’s not a surprise they look similar, but what’s clear is that we don’t want to be overweight any of them.
If you take it down to the individual holding level, there aren’t a lot of clean short setups on an absolute basis. Instead what we’re seeing is a lot of “hot messes”, both structurally and tactically.
This suggests that a lot of this under-performance is due to the individual components not participating to the upside when the market rallies, not necessarily them trending lower.
With that said, there are four stocks that are trending lower and have clearly defined risk and a skewed reward/risk on the short side.