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Chart Of The Day: Industrials Outperform As U.S.-China Trade Talks Resume

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewJan 30, 2019 11:01AM ET
www.investing.com/analysis/chart-of-the-day-200380998
Chart Of The Day: Industrials Outperform As U.S.-China Trade Talks Resume
By Investing.com (Pinchas Cohen/Investing.com)   |  Jan 30, 2019 11:01AM ET
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The Dow Jones Industrial Average was the only major U.S. index in the green yesterday, up 0.21% reflecting the outperformance of mega cap industrial sector shares on the S&P 500. As the benchmark slated to benefit the most from a breakthrough in the U.S.-Sino trade negotiations, are investors giving a thumbs-up to the current trade talks? Why then doesn’t the rest of the market rally as well?

Perhaps investors are buying sectors depressed by the trade rout. A simple check, however, dispels that notion, as Industrials (+9.24%), in fact, outperformed among the sectors YTD.

Or maybe a weak dollar is boosting multinationals’ sales overseas. A quick check of the dollar-index chart reveals that's not the case either. The dollar has been on the rise since the beginning of 2018.

It may be, though that the USD/CNY's -2.36% decline YTD is overcoming Chinese tariffs.

Bottom line, either there is a serious divergence of outlooks on trade among investors, who on the one hand are propping up Industrials and Materials, but on the other hand are cautious on the broader market. Alternatively, perhaps as we have been wondering, it could be that trade talks are not the headwind the market narrative would have investors believe.

XLI Daily Chart
XLI Daily Chart

The price closed above its downtrend line since the September record peak, after overcoming the resistance of the 50DMA. Above that loom the 100 and 200 DMAs. The MACD and RSI appear to be weakening, after a solid advance. On the other hand, the RSI posted higher almost two weeks ago, while the price reached $70.44, 5.3% below its $74.76, December 3 peak.

As the outperforming sector YTD, it represents the uncertainty of the broader market very well. We expect a major move, but in either direction. Anything can happen.

As a result, we maintain our position, which we've held since the medium-term trend reversed, and are still betting the Industrial Select Sector SPDR (NYSE:XLI) is more likely to fall.

Trading Strategies – Short Position Setup

Conservative traders should wait for a close below the 67 level, the month’s lows, followed by a retest of the downtrend line.

Moderate traders may be content with a close below the 68 levels, where the price action has taken place during the last couple of weeks, followed by a pullback that demonstrates resistance remains intact.

Aggressive traders may want to wait for a close below the downtrend line, especially for the presumed outburst of optimism that may follow Apple’s (NASDAQ:AAPL) earnings and guidance.

Trade Sample

  • Entry: $68
  • Stop-loss: $70
  • Risk: $2
  • Target: $62
  • Reward: $6
  • Risk-Reward Ratio: 1:3
Chart Of The Day: Industrials Outperform As U.S.-China Trade Talks Resume
 

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Chart Of The Day: Industrials Outperform As U.S.-China Trade Talks Resume

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