Materials Sector

Investors Dump Fat Technology Stocks And Chase Skinny Materials Sector Shares

21 September 2020

Since early September the US stock market has been in a corrective phase. Everybody's sweetheart, the Technology Sector, is on operating table going through liposuction. It may take some time before technology stocks lose some weight and become attractive again. Meanwhile, a relatively skinny, Materials Sector, which had been underperforming the broader market for a number of years, has started to attract attention.

Below we take a look at Materials Sector's relative and absolute performance charts and identify some stocks that are driving this sector higher.

Materials Sector's outperformance may be a warning sign of a market top

Historically and according to the sector rotation model, the Materials Sector outperforms when the stock market starts to peak, while the economy is still on its course to expansion. The current rise outperformance of the materials sector, while the stock market is near its historic highs, may be warning sign of a bear market ahead.

S&P-500 Materials Sector / S&P-500 Index (Ratio) Chart

The Materials Sector has underperform,ed the broader market for a number of years. The sector index made a 19 year low in May this year. Since then the ratio has broken above the two and a half year bear trendline, as well as the quarterly and yearly moving averages. The MACD and other indicators are turning positive and pointing high. While the RSI is in a somewhat overbought territory and may be warning aof a near term dip, overall it reaffirms a positive trend.

S&P-500 Materials Sector Index

The sector index has broken above the two and a half year trendline resistance as well as the record high seen in early 2018. While the broader market has been seeing a correction recently, the Materials sector has posted fresh record highs. The former trendline resistance now serves as an immediate support near 392.

A Few Top Performing Stocks Within The Materials Sector

Freeport-McMoRan Inc (FCX)

FCX is one of the stocks behind the recent outperformance of the Materials sector. After breaking above a six year trendline resistance, the stock is currently at it's two year high. While the nearv term RSI is in a somewhat overbought territory, the rising ADX and the broader chart structure remains supportive. The 15.75-15.00 area serves as the first line of defence.

Mosaic Co (MOS)

The MOS share price decisively broke above its year and a half long trendline resistance in early August before entering into a consolition phase to construct a bull flag. The recent new highs suggest a resumption of the uptrend. Strong support is sited around the $17.00 mark.

Dow Holdings Inc (DOW)

Dow Holdings Inc has been a star performer in the recent weeks. So far the stock price has been showing a complete immunity to the broader market decline. The early September break above a triangle formation led to the current probes above the 1-1/2 year trendline resistance near 50.00. While the 47.00-45.00 area hold, scope remains for the uptrend to gain momentum for new highs in the coming weeks.

Eastman Chemical Co (EMN)

Eastman Chemical Co has been a bulletproof outperformer during the recent weeks, while the broader market has been edging lower. The stock price is making fresh near two year highs. The chart structure remains bullish and the rising ADX underpins the strengthening bullish momentum. Upon weakness, look for the 77.50-73.00 area to offer solid support.

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