Chart Advisor: Materials Steel the Show – Materials lead a broad stock market rally as the dollar and rates fall.

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

1/ Materials Steel the Show

2/ Exxon Completes a Base

3/ Improving Internals

3/ Improving Internals

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1/ Materials Steel the Show

Materials led the way today, capping off a very strong week for this cyclical group. Beneath the surface, steel was the top-performing industry on both a daily and weekly basis.

Here is the VanEck Steel ETF (SLX), hooking back into its multi-year range.

Source: All Star Charts, with data provided by Optuma

SLX gained roughly 10% on the week, making a decisive move back above its pivot lows from last winter. Notice how this level coincides almost perfectly with the prior-cycle highs from 2018, making it a critical polarity zone.

As long as prices maintain the current range, this continuation pattern is intact and could resolve higher in the direction of the underlying trend.

2/ Exxon Completes a Base

We often use the largest companies from various sectors to glean information on the entire group and the overall market. We refer to these stocks as “bellwethers” as they are imperative to the global economy and indicative of how their broader sector or industry is faring.

When it comes to energy stocks, one bellwether is Exxon Mobil (XOM). It is the largest energy company in the United States and has the largest weighting in most energy indexes.

Source: All Star Charts, with data provided by Optuma

Today, Exxon achieved new all-time highs on both a daily and weekly closing basis. The stock has been consolidating in a constructive manner, digesting gains and absorbing overhead supply at its 2014 highs since June. 

If these new highs are here to stay, we could be in for a fresh leg higher. The “bigger the base, the higher in space” comes to mind when we see these patterns.

3/ Improving Internals

As the U.S. indexes grapple with significant support levels, we’re seeing incremental improvements in market breadth and internals.

Here is our sector-level breadth indicator (dark blue line) putting in a slight positive divergence, making a higher low even as the S&P 500 makes lower lows (light blue line).

Source: All Star Charts, with data provided by Optuma

This tells us that more uptrends are forming beneath the surface in various sectors. This kind of breadth improvement is constructive and would need to continue if the major averages and broader market are going to put in a durable low. 

If that is the direction things are headed, we could see other breadth improvements, such as an expansion in new short-term highs in the near future.

4/ MLPs Are Energy Stocks Too

Often overlooked in the energy space are MLPs or midstream companies. These stocks are the transports of the oil and gas industry, linking the upstream explorers and producers with the downstream refiners and oil services companies.

Consider the Alerian MLP ETF (AMLP):

Source: All Star Charts, with data provided by Optuma

Like other energy industry ETFs, AMLP is in the process of digesting overhead supply. The bulls have spent most of the year challenging a critical level of former support turned resistance.

If and when they reclaim this critical polarity zone, we could expect price to resolve higher in the direction of the underlying trend. 

Originally posted 21st October, 2022

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