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