Industrial Sector Outshines

Sector Rotation: Industrial Sector Starts To Outshine The Broader Market

17 September 2020

Following Covid-19 crash, the market saw a remarkable rally in the Technology and Consumer Discretionary sectors. Many stocks in both sectors, especially the large caps, made new record highs well beyond the pre-Covid peaks. Since early September, however, these stocks are going through a correction. Meanwhile other sectors have started to outshine the broader market. One of the out performers is the Industrial Sectors. Below we examine the price performance of the Industrial secotr relative to the broader market, its absolute price trend and some of the stocks that are driving this sector high.

S&P-500 Industrial Sector Index

S&P 500 Industrial Sector Index Relative To The S&P 500 Index (Ratio)

The Industrial Sector had been underperforming the boader market since December 2016. The ratio saw a sharp decline in March this year ahead of finally bottoming out in May. Looking at the last 6 month price action, we notice that the ratio has constructed a base. The recent break above the triangle resistance, coupled with the ADX line recovering from extremely low levels, may be a precursor to an advance in the ratio.

S&P 500 Industrial Sector Index Absolute Performance

The sector index has broken above the yearly moving average, as well as the June peak. The recent correction in the broader market saw a minimal impact on the Industrial Sector Index. This underscores the resilience of the sector. With the index now advancing through its monthly average, scope is for a bull run through the record high, seen in February this year.

Some Bullish Stocks Within The Industrial Sector

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FedEx Corp (FDX)

The stock is on fire and has been completely resilient during the recent correction in the broader market. While we remain bullish on FedEx, in the near term a correction may unfold as the stock tests it's former record highs.

United Parcer Serv (UPS)

UPS has been another star performer in the recent months. The stock has risen over 35% since breaking it's former record high early last month. Like FedEx, UPS also is in an overbought territory and may see a pullback - which would be deemed a buying opportunity.

Deere & Co (DE)

Deere & Co has been a star performer. The share price did not look back after breaking above the pre-Covid record high. The stock has been making new all-time highs while the rest of the market is seeing a correction. The chart structure shows further medium term advance potential

Cintas Corp (CTAS)

Cintas Corp stock has been in a secular bullish trend for years. Unlike FDX and UPS, Cintas is not in an extreme overbought state. With the stock holding close to it's recent record highs, and some solid support sited below the current levels, CTAS should see new highs in the near future.

Masco Corp (MAS)

Masco Corp has been making new record highs since mid July. In the recent weeks, it has unwound previously overbought conditions while staying resilient to the broader market decline. With a bullish chart structure and a recent MACD buy signal in place, look for new record highs in the near future. The 55-52 area serves as a solid support.

Cummins Inc (CMI)

Cummins Inc stock entered uncharted territory to make fresh record highs late July ahead of the current 5 week flat consolidation phase to form a potential bull flag. Cummins stock's resiliance during the recent market correction underpins its strength. A break over 214 seems imminent and would open an extension towards 250+. Look for the 200-194 area to hold upon any dips.

Parker-Hannifin Corp (PH)

Parker-Hannifin Corp seems to have potential for an advance. Following a five week period of very low volatility, the stock has started to make new marginal record highs. This suggests the rally may gain further momentum soon. An approximate initial target would be near $270. The 200-193 area offers solid support.

Norfolk Southern Corp (NSC)

The Norfolk Southern Corp share price has been in a secular uptrend for a number of years. Since April the stock price has been rising within a bullish channel. While the broader market is currently seeing a downwards correction, this stock has started to make fresh record highs. Look for the current advance to gain momentum towards the channel resisance. Some solid support is sited in the the 210-200 area.

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