Chart Review: A Cautious Eye on Cyclicals – Materials and Industrials

Cyclical stocks continue to worry me even as the S&P 500 treads water. Charts across a wide swath of related stocks show inabilities to break critical resistance and in some cases, are outright breaking down. Here are several representative charts along with brief commentary.

The Materials Select Sector SPDR (XLB) and the Industrial Select Sector SPDR (XLI) both failed at 50-day moving averages (DMAs) last week. XLB is below its 200DMA again and is back in very bearish territory.


XLI fails sharply at its 50DMA
XLI fails sharply at its 50DMA


XLB fails sharply at its 50DMA and returns to very bearish territory under the 200DMA
XLB fails sharply at its 50DMA and returns to very bearish territory under the 200DMA

Caterpillar, Inc. (CAT) failed to benefit much from the stock market’s raly through last Thursday’s sell-off. It remains negative for the year and looks ready for a fresh round of selling.


Caterpillar continues to point toward lower prices
Caterpillar continues to point toward lower prices

CAT cousin Terex (TEX) is below its 200DMA again. The declining 50DMA will likely form an ever tighter ceiling.


Terex still has support from June's low, but not likely to last much longer
Terex still has support from June's low, but not likely to last much longer

Many steel stocks have cratered again in 2012. The Market Vectors Steel ETF (SLX) already retested 2011 lows and failed to gain enough momentum to pull away from a new breakdown.


 Market Vectors Steel ETF hit a post-recession peak in spring 2011 and has been downhill ever since
Market Vectors Steel ETF hit a post-recession peak in spring 2011 and has been downhill ever since

The recent rally in Siemens AG (SI) off 2012 lows stalled right under its 50DMA. The stock is now trading back at critical support that has held since 2010.


Siemens sold off to rest right on critical support
Siemens sold off to rest right on critical support

Fastenal Company (FAST) and fellow parts supplier W.W. Grainger, Inc. (GWW) continue the malaise I pointed out in “Rich Valuations Mean Fastenal Has Likely Peaked Short-Term, Buy On Lower Prices.”

FAST is right back to critical support from the lows of the year. It seems almost sure to continue it sell-off.


FAST prints a 'falling three methods' pattern that signals continuation of the prevailing trend - down
FAST prints a 'falling three methods' pattern that signals continuation of the prevailing trend - down

Although GWW’s 200DMA continues to rise, the stock also continues to fail at that resistance level.


GWW keeps failing to break resistance
GWW keeps failing to break resistance

Flowserve (FLS) remains a relative bright spot although its stock has trended down since hitting a 2012 peak in February. FLS is sstruggling to break free of a declining 50DMA. Another break below the 200DMA will likely ignite a fresh sell-off.


Flowserve struggles to break free of a declining 50DMA
Flowserve struggles to break free of a declining 50DMA

Source for charts: FreeStockCharts.com

Whether trading off recent highs or recent lows, all these stocks are warning of future economic weakness. I strongly suspect July will deliver some very ominous earnings warnings that will reinforce the poor technical patterns developing here. This group, and many others, is in high need of a very positive catalyst…and soon.

Be careful out there!

Full disclosure: long CAT; long SI calls; long TEX puts; long SDS and SSO

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