Mr. Arbeter discusses the recent price action in XLB, and XME, as well as, the SP500’s resilience despite a number of negative breadth, and momentum divergences.
Some of the largest industry gains in 2021 have come from Materials (XLB), yet XLB is only fifth among the eleven S&P 500 sectors. It never hurts to look behind the door and take a deeper dive once in a while. One of the ETFs that fit into this space is the SPDR S&P Metals & Mining (XME). This ETF is made up of Steel (40%), Aluminum (16%), Gold (13%), Specialty Mining ($6%) and Coal (6%). Top holdings in XME include MP Materials (MP 6%), Century Aluminum (CENX 5%), Alcoa (AA 5%), Cleveland-Cliffs (CLF 5%), Steel Dynamics (STLD 5%) and Commercial Metals (CMC 5%). Viewing the industries and individual stocks technically, they all look constructive except for the gold stocks and one of the aluminum stocks – Century Aluminum. Looking at the industries that make up the XLB, Steel ($DJUSST) is up 95% so far in 2021, Aluminum ($DJUSAL +92%), Nonferrous Metals ($DJUSNF +48%), and Paper ($DWCPAP +28%). Gold mining is at the bottom of the sector, and is flat for the year. Some of the monster steel moves have come from Timken Steel (TMST +261%), Olympic Steel (ZEUS +134%), Nucor (NUE +132%), Ternium SA (TX +103%) and Steel Dynamics (STLD +94%). From aluminum, AA has jumped 92%, Aluminum Corp. of China (ACH) has gained 79%, while Norsk Hydro AS (NHYDY) advanced 55%. Checking back with the primary ETF’s XLB and XME, they both look good technically and have shown some relative strength vs. the “500” since mid-July. XLB ($86.05) looks like it is tracing out a bullish cup, and to complete this pattern needs to break above $89. XME ($45.31) has completed a small inverse head-and-shoulders and may be working on a larger cup. A break over $48 would complete the cup formation. Both ETFs recently pulled back to their 21-week exponential averages and bullishly held. They have also retaken their respective 50-day averages recently.