It is not getting a lot of attention, but the materials sector has been quietly strong this year. The Materials Select Sector SPDR (XLB) is up 8.3% and flirting with its 52-week high.
On year-to-date basis, the steel industry has not been a factor in the materials sector’s upside as the Market Vectors Steel ETF (SLX) is down almost 4%, but the lone steel ETF has recently been picking up the pace. SLX is up 7.1% over the past three months and the ETF is could be poised to add to those gains.
“SLX stalled around $50 and has since formed a bullish consolidation above the rising 10-month moving average, with volume declining the past few weeks,” notes Deron Wagner of Morpheus Trading Group. “The daily chart shows the current basing action holding above all three major averages in April, May, and June, with a few bullish shakeouts along the way.”
An important element in the performance of SLX is the behavior of international materials, in particular, emerging markets. Brazil is the second-largest country weight in SLX at 21.3% behind the 35.1% allocated to the U.S.
Brazil’s Vale (VALE), the world’s largest iron ore producer and frequently a top holding in large-cap Brazil ETFs, is SLX’s top holding at a weigh of almost 13%. That gives the steel ETF some correlation to additional upside for Brazilian stocks. [Brazil ETFs Rally Ahead of World Cup]
“SLX should hold above $45.50 for the setup to remain in play in the short-term. A clear break of $45 may not kill the pattern, but would certainly require a few weeks of consolidation to repair the damage,” added Wagoner.
Steel stocks have a tendency to be volatile. The $99.5 million SLX has a beat against the S&P 500 of 1.86 and a three-year standard deviation of 29.3%, according to Market Vectors data.
Market Vectors Steel ETF
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.