From the desk of Tom Bruni @BruniCharting
There are a lot of messy charts out there, but we’ve been discussing the importance of having a global perspective and using weekly/monthly charts to stay focused on structural trends as opposed to the day to day noise/chop we’ve been experiencing.
Today we want to look at an area showing relative strength that’s still offering opportunities for those who need to put cash to work.
The sector we’re looking at today is Industrials, specifically large-cap Industrials relative to the S&P 500, but it’s important to note that we’re seeing strength in this sector across market-cap segments.
From a large-cap perspective, the relative chart has been rangebound for the last decade and is now reversing sharply from its lower end as momentum diverges positively.
This brief undercut of the late 2018 and early 2019 lows likely shook some people out of their positions, especially since we had already seen failed breakouts confirm in the mid and small-cap Industrial indices.
Click on chart to enlarge view.
With that said, this recent move has reconfirmed support at these levels and suggests prices could be setting up for a move back towards the top of their range over the coming months and years. This would likely coincide with new highs in the mid and small-cap indices that have worked off their failed breakouts and are pressing back up against resistance as we speak.
Keeping it simple on an absolute basis, does this 2-year chart of Industrials look like a major top? or a consolidation? We’d argue the latter.
Within Industrials there are a few areas of relative strength that immediately stand out to us, Aerospace & Defense and Trucking.
Here’s ITA, which has been weighed down heavily by its 20%+ weighting in Boeing, finally looking ready to follow the path of the equally-weighted XAR to new all-time highs. As long as prices are above 219 then we have to be erring on the long side with a target near 255. Boeing staying above 370 would be a big positive as well.
Here’s the Dow Jones Trucking Index taking the baton from former leader Railroads while Airlines remain in a league of their own, failing yet another rally attempt. Structurally this chart has some work to do, but bears had a number of chances to take this lower and they dropped the ball again. The path of least resistance, for now, appears higher.
If you’re focused on price action and areas of relative strength rather than headlines, then Industrials are probably worth a look right about now.
And if Industrials break out to new all-time highs, then we’re probably in an environment where Equities as an asset class are doing well too.
Needless to say, we’re watching this sector closely.
Thanks for reading and let us know if you have any questions!
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