This picture is exactly what I do not want to see as the stock market struggles to hold critical technical supports: a major index of economically-sensitive stocks confirming a breakdown of support at its 200-day moving average (DMA). The Materials Select Sector SPDR ETF (XLB) lost 1.3% on a day when the S&P 500 (SPY) only lost 0.3%. XLB also closed at a 5+ month low which added more confirmation to its bearish breakdown below its 200DMA. This picture is particularly troubling on a day when the Bureau of Economic Analysis (BEA) revised its estimate for U.S. fourth quarter annual GDP growth UPWARD from 2.5% to 2.9%. Investors did not seem to care and instead looked ahead to some future troubles.
This trading action forced me out of a position in Vulcan Materials (VMC). For too long I watched profits evaporate in this sell-off. VMC broke down twice below its 200DMA and for good measure confirmed its 200DMA as resistance.
For good measure, I sold a long-standing holding in infrastructure play Fluor (FLR). The stock made a fantastic recovery since an 8-year low in August of last year. I am glad I accumulated shares in the sell-off. However, the bearishness in materials made me eager to lock in profits on a company that helps move a LOT of materials.
Allegheny Technologies Incorporated (ATI) deals in specialty materials. At an 11.3 forward P/E, 0.8 price/sales ratio, and a 1.7 price/book ratio, I think of this stock as a very cheap play on a strong global economy. I was looking to buy the stock here around its 200DMA, but the further breakdown in XLB put a pause on my plans. I am now staying on the sidelines to watch some more.
U.S.Concrete (USCR) is a stock where materials, infrastructure, and a strong economy all converge in one place. I want to use the current sell-off as a buying opportunity, but the stock’s weakness has been relentless. Today, USCR lost a whopping 4.1%. The stock is well below its 50 and 200DMAs and looks ready to test the bottom of a trading channel from the first half of 2017. I interviewed CEO Bill Sandbrook last August and received some great insight on the bullish story supporting USCR. I hope to talk to him again soon to get a better understanding of the current weakness, especially since earnings on March 1st.
Be careful out there!
Full disclosure: long SPY shares and calls