Materials SPDR tests February low
The Materials SPDR (XLB) was one of the hardest hit sector SPDRs over the last four weeks. After a 15+ percent decline, the ETF is testing support from the February low. A big bullish engulfing pattern formed on Friday as the ETF opened weak and closed strong. Notice how the long white candlestick completely engulfed the prior red candlestick. Indicator-wise, the Commodity Channel Index (CCI) has a positive divergence working and a cross above the zero line would turn momentum bullish again.
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The February low and reversal provide clues on what to look for now. A harami formed the first week of February and there was a mini breakout the second week of February. A bigger breakout followed the third week of February with a gap up and close above the early February high. XLB advanced from 29.5 top 32.5 and then there was a pullback to the 31 area. This post-breakout pullback is called a throwback that provides a second chance to partake in the breakout. The Commodity Channel Index (CCI) also formed a positive divergence from late January to early February. Notice that the CCI break into positive territory corresponded with the XLB breakout at 31.5.
