{"id":43691,"date":"2018-05-01T22:41:38","date_gmt":"2018-05-02T05:41:38","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=43691"},"modified":"2018-05-01T22:42:20","modified_gmt":"2018-05-02T05:42:20","slug":"deconstructing-materials-stocks","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2018\/05\/01\/deconstructing-materials-stocks\/","title":{"rendered":"Deconstructing Materials Stocks"},"content":{"rendered":"<p>The deconstruction continues in material stocks. The culprit this time around was a poor reading and interpretation of construction spending. Per <a href=\"http:\/\/abcnews.go.com\/Business\/wireStory\/us-construction-spending-drops-17-percent-march-54852749\" rel=\"noopener\" target=\"_blank\">AP News<\/a>:<\/p>\n<blockquote><p>&#8220;U.S. construction spending dropped 1.7 percent in March, the biggest setback in 11 months, with weakness in a number of sectors including the biggest plunge in home building in nine years.<\/p>\n<p>The March decline was the first monthly drop since last July and the biggest contraction since a 1.8 percent fall in April 2017, the Commerce Department reported Tuesday. Spending on residential construction was down 3.5 percent, the worst showing since a 4.2 percent decline in April 2009.&#8221;<\/p><\/blockquote>\n<p>While these numbers seem dire, they lose a lot of significance for me when taken in context. For example, here is the chart of total construction spending since 2000; it makes March&#8217;s drop look like a pebble dropping in a lake. (I put all the spending charts on log scale given the wide range in spending from trough to peaks).<\/p>\n<p><center><br \/>\n<figure id=\"attachment_43692\" aria-describedby=\"caption-attachment-43692\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_ConstructionSpendingTotal.png\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_ConstructionSpendingTotal.png\" alt=\"Total construction spending is on a strong uptrend since the post-recession trough of January, 2011.\" width=\"550\" height=\"468\" class=\"size-full wp-image-43692\" \/><\/a><figcaption id=\"caption-attachment-43692\" class=\"wp-caption-text\">Total construction spending is on a strong uptrend since the post-recession trough of January, 2011.<\/figcaption><\/figure><br \/>\n<strong>Source: U.S. Bureau of the Census, Total Construction Spending [TTLCONS], <a href=\"https:\/\/fred.stlouisfed.org\/series\/TTLCONS\" rel=\"noopener\" target=\"_blank\">retrieved from FRED, Federal Reserve Bank of St. Louis<\/a>; May 1, 2018.<\/strong><br \/>\n<\/center><\/p>\n<p>Breaking down the picture is a little more informative. Private non-residential construction spending peaked September, 2016 but March&#8217;s number was significantly higher than February.  <\/p>\n<p><center><br \/>\n<figure id=\"attachment_43695\" aria-describedby=\"caption-attachment-43695\" style=\"width: 490px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_ConstructionSpendingPrivateNonResidential.png\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_ConstructionSpendingPrivateNonResidential.png\" alt=\"Total private non-residential construction spending hit a peak almost two years ago but only just recently broke its uptrend from the trough.\" width=\"500\" height=\"468\" class=\"size-full wp-image-43695\" \/><\/a><figcaption id=\"caption-attachment-43695\" class=\"wp-caption-text\">Total private non-residential construction spending hit a peak almost two years ago but only just recently broke its uptrend from the trough.<\/figcaption><\/figure><br \/>\n<strong>Source: U.S. Bureau of the Census, Total Private Construction Spending: Nonresidential [PNRESCON], <a href=\"https:\/\/fred.stlouisfed.org\/series\/PNRESCON\" rel=\"noopener\" target=\"_blank\">retrieved from FRED, Federal Reserve Bank of St. Louis<\/a>; May 1, 2018.<\/strong><br \/>\n<\/center><\/p>\n<p>Private residential construction spending took a nasty tumble in March relative to the peak. Still, relative to the on-going trend, it looks like a blip that is simply taking the numbers down from what looks like a swift pick-up in the trend over the last several months.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_43697\" aria-describedby=\"caption-attachment-43697\" style=\"width: 490px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_ConstructionSpendingPrivateResidential.png\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_ConstructionSpendingPrivateResidential.png\" alt=\"Overall, private residential construction spending still looks very strong.\" width=\"500\" height=\"468\" class=\"size-full wp-image-43697\" \/><\/a><figcaption id=\"caption-attachment-43697\" class=\"wp-caption-text\">Overall, private residential construction spending still looks very strong.<\/figcaption><\/figure><br \/>\n<strong>Source: U.S. Bureau of the Census, Total Private Construction Spending: Residential [PRRESCONS], <a href=\"https:\/\/fred.stlouisfed.org\/series\/PRRESCONS\" rel=\"noopener\" target=\"_blank\">retrieved from FRED, Federal Reserve Bank of St. Louis<\/a>; May 1, 2018.<\/strong><br \/>\n<\/center><\/p>\n<p>The overall numbers did not matter for material stocks though as the Materials Select Sector SPDR Fund (XLB) gapped down and sold down to levels last seen a month ago. Fortunately, buyers stepped into enough of the components to almost close XLB flat on the day.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_43700\" aria-describedby=\"caption-attachment-43700\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_XLB.png\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_XLB.png\" alt=\"The Materials Select Sector SPDR Fund (XLB) almost closed flat after buyers stepped in to save the day.\" width=\"550\" height=\"375\" class=\"size-full wp-image-43700\" \/><\/a><figcaption id=\"caption-attachment-43700\" class=\"wp-caption-text\">The Materials Select Sector SPDR Fund (XLB) almost closed flat after buyers stepped in to save the day.<\/figcaption><\/figure><br \/>\n<strong>Source: <a href=\"http:\/\/www.freestockcharts.com\/platform\/v1\" rel=\"noopener\" target=\"_blank\">FreeStockCharts.com<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>A few individual material stocks REALLY got slammed. For example, one of my favorites, U.S. Concrete (USCR) was down as much as 8.8% and a new 18-month low before buyers stepped in. The losses were too great to get back to even though &#8211; USCR closed with a 2.7% loss. Today&#8217;s response to the construction numbers was the mirror image of the distorted post-earnings move yesterday which took USCR up as much as 9.4% and a test of downtrending 50-day moving average (DMA) resistance before sellers faded the stock all the way to flat. These are some extreme moves for a concrete company that is still reporting strong numbers! I will probably buy my second tranche of USCR and just wish I was on top of the action when it was down even 6%!<\/p>\n<p><center><br \/>\n<figure id=\"attachment_43699\" aria-describedby=\"caption-attachment-43699\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_USCR.png\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_USCR.png\" alt=\"U.S. Concrete (USCR) lost as much a whopping 8.8% before buyers stepped in to salvage a 2.7% loss at the close.\" width=\"550\" height=\"375\" class=\"size-full wp-image-43699\" \/><\/a><figcaption id=\"caption-attachment-43699\" class=\"wp-caption-text\">U.S. Concrete (USCR) lost as much a whopping 8.8% before buyers stepped in to salvage a 2.7% loss at the close.<\/figcaption><\/figure><br \/>\n<strong>Source: <a href=\"http:\/\/www.freestockcharts.com\/platform\/v1\" rel=\"noopener\" target=\"_blank\">FreeStockCharts.com<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>Acuity Brands, Inc. (AYI) also lost big on the day. AYI gapped down and lost 4.9%. AYI provides lighting solutions for non-residential building and has struggled for almost two years after hitting an all-time peak. AYI has been reporting challenges in the private non-residential construction market and its peak coincides with the peak in spending in the sector. Still, I am wondering whether selling is finally reaching a crescendo. (Note AYI also announced an acquisition this day that the company said would not impact 2018 results).<\/p>\n<p><center><br \/>\n<figure id=\"attachment_43701\" aria-describedby=\"caption-attachment-43701\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_AYI.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2018\/05\/180501_AYI.jpg\" alt=\"Acuity Bxrands (AYI) dropped to a near 4-year low on the heels of March&#039;s construction spending numbers.\" width=\"550\" height=\"391\" class=\"size-full wp-image-43701\" \/><\/a><figcaption id=\"caption-attachment-43701\" class=\"wp-caption-text\">Acuity Bxrands (AYI) dropped to a near 4-year low on the heels of March&#8217;s construction spending numbers.<\/figcaption><\/figure><br \/>\n<strong>Source: <a href=\"http:\/\/www.freestockcharts.com\/platform\/v1\" rel=\"noopener\" target=\"_blank\">FreeStockCharts.com<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>Any way you slice it, investors and traders are on a cliff&#8217;s edge with materials stocks. Bad news greases the skids and good news is examined with skeptical scrutiny. It is a tough environment for investing. Still, at least for USCR, as long as I am interpreting the reports as strong, I see opportunity.<\/p>\n<p>Full disclosure: long USCR<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The deconstruction continues in material stocks. The culprit this time around was a poor reading and interpretation of construction spending. Per AP News: &#8220;U.S. construction spending dropped 1.7 percent in March, the biggest setback in 11 months, with weakness in a number of sectors including the biggest plunge in home building in nine years. The &#8230; <a title=\"Deconstructing Materials Stocks\" class=\"read-more\" href=\"https:\/\/drduru.com\/onetwentytwo\/2018\/05\/01\/deconstructing-materials-stocks\/\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[199,59,512,62,1304,920],"tags":[337,1200,1772,985],"class_list":["post-43691","post","type-post","status-publish","format-standard","hentry","category-commodities","category-economy","category-resistance","category-technical-analysis","category-top","category-uptrend","tag-ayi","tag-construction","tag-uscr","tag-xlb"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Deconstructing Materials Stocks - ONE-TWENTY TWO: Trading Financial Markets<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/drduru.com\/onetwentytwo\/2018\/05\/01\/deconstructing-materials-stocks\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Deconstructing Materials Stocks - ONE-TWENTY TWO: Trading Financial Markets\" \/>\n<meta property=\"og:description\" content=\"The deconstruction continues in material stocks. The culprit this time around was a poor reading and interpretation of construction spending. Per AP News: &#8220;U.S. construction spending dropped 1.7 percent in March, the biggest setback in 11 months, with weakness in a number of sectors including the biggest plunge in home building in nine years. The ... 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The culprit this time around was a poor reading and interpretation of construction spending. Per AP News: &#8220;U.S. construction spending dropped 1.7 percent in March, the biggest setback in 11 months, with weakness in a number of sectors including the biggest plunge in home building in nine years. The ... 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