Market Analysis

Industrials: Hmm

As you know from this weekend’s The Case for New Lows, I’m watching larger structural charts closely. One chart that I didn’t include in the video, but perhaps should, have is $XLI, the ETF tracking industrials.  Like many indices it followed the same script I’ve been outlining: New highs in 2018, on a negative divergence, a break below its 2009 bull trend and now a big rally in early 2019.

And like the larger market it has found resistance at its 2009 trend line.

Boeing, the stock I had highlighted as sell risk over a week ago (Boeing Danger) is XLI’s larger component. After the 6% drop last week the stock is now under additional severe pressure due to the horrid plane crash this weekend and with a 10% relative weight it has an impact on $XLI no doubt:

So it’s perhaps easy to dismiss what I’m about to show you as a one stock problem, but I assure you it’s not. Because 90% of the ETF are other components and $XLI rejected from the trend line last week before the plane crash.

Look closely:

The obvious question here: Is this a mirror image replay of 2008? I’m not predicting a new financial crisis here, I’m just observing the chart and I can’t help but be impressed how clean these 2 pattern structures are.

New highs on a negative divergence, a break of a long term bull trend, a retest of the trend line and now a rejection.

In 2008 this trend line tag was the extent of the counter rally before markets resumed their downward trend. Maybe it’s nothing, but perhaps it’s everything. We won’t know until we see some confirmation and the first signal of confirmation would be a break of $XLI moving below last week’s lows. Currently $XLI is engaged in a bounce during this March OPEX week despite Boeing’s weakness. We’ll see if it lasts.

In any event, it’s another key chart to keep an eye on.


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3 replies »

  1. Curious why you use log scale to view these charts? If you view the same chart on a linear scale, the trend line from 2009 was not broken at all in December 2018, which provides a completely different conclusion (bull market still intact).

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