Trend Check with Tushar Chande

A Deep Dive Into the Industrials Sector

The Industrials Sector via the Industrials Select Sector SPDRs XLI ETF has risen to the top of my Chande Trend Meter rankings, as the mighty Technology Sector (XLK) consolidates.  I will take a deeper look at the the constituents of the XLI and identify some of the strongest stocks in this sector, which accounts for some 10.4% of the S&P 500 index. I will also examine the performance of ETFs focused on industrial sector stocks. Tom Bowley also wrote briefly about Industrials sector's strength earlier this week.

Chart 1: The Industrials sector has charged to the top of my key sector and index rankings using the Chande Trend Meter.  

 


The Industrials Select Sector SPDR has broken out to new yearly highs (see Chart 2) where I have overlaid a 260-day price channel onto the daily price chart.  Note how it rallied nicely after the election into March, and then consolidated in a sideways channel through mid-May before breaking out, re-testing the breakout at around 67, and then moving higher.

 

Chart 2: The XLI Industrial Select Sector SPDR ETF has broken out to new yearly highs after ending the consolidation from March through late May. (A live version is here.)

 

XLI Internals Are Strong

The percentage of stocks in the XLI ETF above their 200-day simple moving average is comfortably above 50%, and has not looked back since the Februrary, 2016 bottom (see Chart 3).  Looking at multiple time-periods, the path of least resistance is well in the green from short- to long-term, showing the sector's trend state (see Chart 4).

Chart 3: The percentage of the stocks in the XLI above their 200-day simple moving average is well above 50 percent.  Notice how this sector has been bullish since the recovery from the lows of early 2016.

 

Chart 4: The XLI is moving higher with excellent participation from all its constituents across all four time frames. (Details of the models are here.)

 

Seasonality is Favorable

The Dow 30 Industrials Average is entering a seasonally favorable period, looking back 5-years (see Chart 5) or 20-years (see Chart 6).  Indeed, a look at the Trend Check Carpet shows that the Dow 30 (extreme left of chart) is trending higher on all four time frames used to construct the chart.  Technology stocks are consolidating, as can been seen on the QQQ data.

 

Chart 5: A seasonality chart of the Dow 30 shows a favorable period in June-July looking back over the past five years.

 

Chart 6: July still stands out as a period of favorable seasonality going back 20 years.

 

Chart 7: The Dow 30 Industrials average is trending higher on all for time frames, as you can see at the left edge of the Trend Check carpet. Other than the tech-heavy QQQ, all of the major indexes are trending higher on all time frames. (Details of the models are here.)

 

Strongest Stocks in the XLI


I ranked the stocks in the XLI ETF using the Chande Trend Meter (CTM), and cut off the table to show only those with CTM > 90 (see Chart 8).  I pointed to MMM earlier in the week, and it has moved higher since then.  A look at a chart of Lenox International (#2 on the list) shows it is breaking higher with excellent momentum (see Chart 9).

 

Chart 8: A scan of Industrial sector stocks with CTM greater than 90 helps narrow down to the top trending stocks.  The individual chart look roughly similar to that of LII below.

 

Chart 9: The Lenox International chart is typical of those in Chart 8.  Observe how the high-low range has narrowed in 2017, as trends have set in.

 

Relative Rotation Of Various Industrials ETFs


I looked at a variety of Industrials focused ETFs and their RRG charts are shown in Chart 10.  It is the international industrials ETFs that stand out in those two charts.  I put together a Candle Glance summary of these same ETFs to show that they all had high CTM values as well (see Chart 11).

 

Chart 10: I examined key industrials focused ETFs and their performance relative to the SPX.  Non-US stocks in this sector have done even better, as shown by the IPN and EXI ETF performance.

 

Chart 11: A Candle Glance summary of industrials focused ETFs show most of the have very good momentum (see Chande Trend Meter line in the lower panel of each ETF chart). 

 

Summary

The industrials invite you to their summer party.  Enjoy!

Thank you for tuning in, and  a Happy Father's Day to all!


Tushar

 

 

 

 

 

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