Materials SPDR tests February low

The Materials SPDR (XLB) was one of the hardest hit sector SPDRs over the last four weeks. After a 15+ percent decline, the ETF is testing support from the February low. A big bullish engulfing pattern formed on Friday as the ETF opened weak and closed strong. Notice how the long white candlestick completely engulfed the prior red candlestick. Indicator-wise, the Commodity Channel Index (CCI) has a positive divergence working and a cross above the zero line would turn momentum bullish again.

100524xlb Click this image for details

The February low and reversal provide clues on what to look for now. A harami formed the first week of February and there was a mini breakout the second week of February. A bigger breakout followed the third week of February with a gap up and close above the early February high. XLB advanced from 29.5 top 32.5 and then there was a pullback to the 31 area. This post-breakout pullback is called a throwback that provides a second chance to partake in the breakout. The Commodity Channel Index (CCI) also formed a positive divergence from late January to early February. Notice that the CCI break into positive territory corresponded with the XLB breakout at 31.5.
Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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