Chart Advisor: Big Milestone for Mid-Cap Industrials

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Wednesday, 28th June, 2023

1/ Big Milestone for Mid-Cap Industrials

2/ Constructing New Highs

3/ Crude Oil Challenges Support

4/ Will Emerging Markets Follow CEW?

Investopedia is partnering with All Star Charts on this newsletter, which both sells its research to investors, and may trade or hold positions in securities mentioned herein. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice.

1/ Big Milestone for Mid-Cap Industrials

The S&P 400 Industrial Index is officially the first sector index to achieve new all-time highs during the current cycle. Yesterday, the mid-cap index ripped through its late 2021 highs just north of 1,700. Here’s a look at the weekly chart:

While tech and growth stocks have been the best performers since last year’s lows, industrials experienced a much shallower drawdown in 2022, so less work was required to get back to the old highs. 

When we look at the small and large-cap industrial sector indexes, they are pressing up against their former highs in similar patterns to the one shown above. We would expect all these indexes to resolve in the same direction. For now, mid caps are suggesting that they could be higher.

2/ Constructing New Highs

While home construction stocks belong to the discretionary sector, we think the strength from this group is the same theme as industrials. Building materials, home furnishings and fixtures, and homebuilders stocks are all benefiting from rotational tailwinds right now. 

Here’s the iShares Home Construction ETF (ITBbreaking out to fresh all-time highs. 

ITB is completing a base formation similar to those we’ve seen from so many other stocks and indexes the past few months. However, this chart is slightly different than most of the others. Notice how the completion of this base puts ITB at new all-time highs rather than just being at new 52-week highs. It’s hard to be bearish when new all-time highs are being made. 

3/ Crude Oil Challenges Support

While market leaders test resistance, the laggards continue to hold above their respective support levels.

This is particularly true for crude oil as price challenges a critical polarity zone at former highs. This area also coincides with the AVWAP from the pandemic lows, making it a confluence of support.

The line in the sand lies at $66 per barrel for crude oil.

Bulls want to see this level hold. However, if crude violates this area, there could be further downside and increased selling pressure for energy-related assets.

4/ Will Emerging Markets Follow CEW?

Emerging markets have been on a tear—both equities and currencies.

But the failed breakout in the Emerging Market Currency Fund ETF (CEW) raises concerns over continued emerging market strength.

Check out CEW overlaid with the Emerging Markets Ex-China ETF (EMXC):

Notice how closely the emerging market currency and equity ETFs follow each other. If CEW continues to drop, we would imagine similar selling pressure spilling over into EMXC.

U.S. stock market bulls want to witness sustained strength overseas, especially from emerging markets. Why? Cyclical value-oriented sectors dominate emerging market equities. And strength across these markets would support a healthy rotation into industrial and other cyclical sectors stateside.

Originally posted 28th June 2023

Join the Discussion

Thank you for engaging with IBKR Campus. If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.

Your email address will not be published. Required fields are marked *

Disclosure: Investopedia

Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy.  While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: ETFs

Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.