BUILDING MATERIALS STOCKS MAY ALSO BE BOTTOMING -- MARTIN MARIETTA AND VULCAN MATERIALS FIND SUPPORT NEAR 200-DAY AVERAGES -- OIL SERVICE STOCKS LEAD ENERGY SECTOR HIGHER AND SHOW BETTER RELATIVE STRENGTH
MARTIN MARIETTA MATERIALS BOUNCES OFF 200-DAY AVERAGE... My Thursday message showed three stock groups that had fallen to their 200-day averages and were starting to stabilize. They included commodity-related groups like energy and metals and mining ETFs. They also included heavy construction stocks like Fluor (FLR) and Jacobs Engineering (JEC). All three groups rebounded this week which is a good sign for the stock market. It also shows that certain groups tied to the so-called "Trump trade" may be getting a second chance. Let's include building materials in that group, which is closely tied to hopes for more infrastructure spending. They took a hit during the first quarter. But they're starting to look better. Two of the group's top gainers this week are shown below. Chart 1 shows Martin Marietta Materials (MLM) rising to a three-week high after bouncing off its 200-day moving average. A close back above its 50-day would confirm that a bottom is in place. The MLM/SPX relative strength ratio (top of chart) fell sharply during February after surging right after the election. It looks ready to start climbing again.
(click to view a live version of this chart)
Chart 1
VULCAN MATERIALS REGAINS 200-DAY LINE... Chart 2 shows Vulcan Materials (VMC) climbing back above its 200-day average after falling to the lowest level since the election. The stock appears to have found support near its October lows. The VMC/SPX ratio (top of chart) has fallen throughout the first quarter after surging right after the election, but appears to be turning higher. The main point in these charts (and the ones shown on Thursday) is to show that several stocks tied to construction have had a rough first quarter as hopes for the Trump trade faded. The bigger point, however, is that several of those stocks have reached levels where new buying should start to resurface. The 200-day average is viewed a major support line. Sustained moves below that support line send a bearish message for individual stocks, and possibly even the stock market. The fact that so many of these economically-sensitive stocks are finding support near their 200-day lines is a good sign for them. New buying in energy, miners of industrial metals, heavy construction, and building materials stocks is also an encouraging sign for the economy and the stock market.
(click to view a live version of this chart)
Chart 2
OIL SERVICES ETF BOUNCES OFF MAJOR SUPPORT... Energy has been the market's weakest sector during the first quarter. But it was this week's strongest sector. My Thursday message showed the Energy Sector SPDR (XLE) and the VanEck Oil Services ETF (OIH) trying to stabilize at their 200-day average. The OIH had the stronger week (+3.7%) versus 1.9% for the XLE. And it also has a stronger looking chart. Chart 3 shows the Oil Services ETF starting to find support at its 200-day average and a rising support line drawn under its January/September lows. In addition, its 14-day RSI line (top of chart) is rebounding from oversold territory near 30. The direction of crude is of course the major factor influencing oil shares. Crude jumped 5.5% this week for its best showing of the year. It also climbed back above its 200-day line which helped boost energy shares. There's another reason why oil service stocks may have an edge on the entire energy sector.
(click to view a live version of this chart)
Chart 3
OIL SERVICES OUTPERFORM ENERGY SECTOR... Chart 4 plots a relative strength "ratio" of the VanEck Oil Services (OIH) divided by the Energy Sector SPDR (XLE). This is the best way to determine which of the two energy ETFs offers better relative strength. After bottoming last September, the ratio rallied sharply into January. That reflected greater relative strength in oil services. The ratio slid during the first quarter as the broader energy sector held up better. The OIH/XLE ratio, however, has now reached a potential support shelf formed over its October peak (green line). And it bounced this week. What the chart suggests is that oil service stocks should do better than the broader energy sector in an upturn. That assumes of course that the price of crude keeps rising (or stops falling), and all the 200-day averages continue to hold.
(click to view a live version of this chart)
Chart 4
PERCENT OF STOCKS OVER 200-DAY AVERAGE TURNS BACK UP... My last two messages have stressed the importance of the 200-day moving average. It's what separates uptrends from downtrends. In order to sustain a bull market, more stocks have be above their 200-day average than below it. And that is currently the case. The red line in Chart 5 is the percent of NYSE stocks above their 200-moving average (which I also showed on Thursday). The line rebounded from 54% just prior to the November election to 76% during February. March's modest setback lowered the line to 64% where it bottomed. This week's upturn shows the red line rising again. That's a good sign for the market. It may also be a good sign for the stocks that are testing or trying to regain their 200-day averages. The blue line at the bottom of Chart 5 shows the percent of NYSE stocks above their 50-day average. That more volatile line fell from 80% to 45% during the first quarter which is a relatively mild setback. And it appears to be climbing again as well. Also good for stocks.
