Industrials have not been spared from the sellers during this period of heightened volatility over the past several weeks. Multiple industry groups have broken support levels, leaving few spots for investors to weather the storm. Breadth in the space has become washed out from a trend perspective and could provide a potential countertrend opportunity for those investors willing to step in at these levels.
S&P 500 Industrials
After finding resistance at the declining 50-day moving average early in the month, Industrials broke support at the May lows in the 743 zone and have been struggling ever since. As volatility at the index level within the S&P 500 remains elevated, the sellers have not spared this space. Relative to the S&P 500, the group remains an in-line performer at best—not breaking down, but not breaking out. Bulls want to see the highlighted zone taken out to the upside to having confidence in a potential neutral to bullish reversal.
Aerospace and Defense have found long-term support at the 1,200 zone below the declining 50-day moving average in this month’s selloff. While the group doesn’t look spectacular on an absolute basis, holding a long-term support zone in this environment is an arrow in the quiver for the bulls. Relative to Industrials, the group is testing relative resistance above the ratio’s flat 50-day moving average.
Building products continue trading below 465 resistance and the declining 50-day moving average. Note that the moving average has provided resistance in late March and April and should be a key line in the sand for the bears to hold. Relative to Industrials, the group continues to underperform, breaking relative support below the highlighted zone and the ratio’s declining 50-day moving average.
Commercial and Professional Services have made an attack on the 438-breakdown level to the upside below the declining 50-day moving average after losing this level to the downside in last week’s trading session. Relative to Industrials, the group has retaken the ratio’s declining 50-day moving average to the upside, with room to the Q1 highs.
Transports have found resistance at the 910 zone below the 50-day moving average in yesterday’s trading session. Recapturing this level to the upside would be a noteworthy development to set up an attack on the 50-day moving average from below. Relative to Industrials, the group has subtly broken out of the downtrend line, and the ratio’s rising 50-day moving average, with room to the Q1 relative highs, should the trend continue.
Airlines have reversed course and recaptured the March lows at the 176 level to the upside, well below the declining 50-day moving average. Relative to Industrials, the group is holding the line at the highlighted zone below the ratio’s declining 50-day moving average. The sheer distance from the 50-day moving averages on both an absolute and relative basis leaves the door open for countertrend bounces, but investors looking to play a bounce in the space would be prudent to apply a heightened risk management process at these levels.
Road and Rail have broken long-term support at 2,460 below the declining 50-day moving average, a level that bulls want to see recaptured to the upside. Relative to Industrials, the group is trading in compression between the highlighted relative support zone and the downtrend line and fighting with the ratio’s 50-day moving average. Further direction from this compression will give investors more information on a relative basis, but until then, a neutral stance would be prudent.
Breadth
The percentage of Industrials components trading above their 50-day moving average has reached washed-out levels, printing consistent readings below the 5% mark since the beginning of last week. There were 174 instances since 1998 where the percentage of Industrials components trading above their 50-day moving average was below the 5% mark for a median gain in the sector of 9.44%, with a 73.17%-win rate over the following quarter. While these results have been attractive and potentially provide an opportunity for a countertrend bounce, investors would be prudent to apply a magnified risk management process during this period of heightened volatility.
This note is a preview of our Thursday Sector Deep Dive. See our thoughts and more in the full report.
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