After being a relatively poor performer over the last year, the industrial goods sector is experiencing a resurgence. It has been one of the top performing sectors over the last three months with four stocks doing especially well. Industrial stocks generally perform well during the later stages of an economic decline and during the early stages of recovery. Therefore, with the industrial goods sector being one of the top performers over the last three months, it may be interpreted as a good sign that the economy is recovering. Over the last three months, the SPDR S&P 500 ETF (NYSE:SPY) is up 6.73% to $124.86, from $116.99. Over the same period, the SPDR Industrials ETF (NYSE:XLI) has outperformed - up 10.42% to $33.71, from $30.53. Four large capitalization stocks have been leading the sector higher and still present opportunities.
Rockwell Automation (NYSE:ROK) is up 30.5% in the last three months to $74.62, from $57.18. The chart shows the stock's recent turn-around. It has moved above the 50-day moving average and is currently challenging the 200-day moving average and also a recent high at $76.49. If the price can break above the recent high and also the 200-day moving average, the trade sets up well for a run at $80, followed potentially by $90 - two key resistance levels. Alternatively, a drop back below the 50-day moving average indicates the stock is weakening. (For more, see Moving Averages Introduction.)
Fastenal Company (Nasdaq:FAST) is close behind, up 29.11% to $41.60, from $32.22 just three months ago. The stock is at 52-week-high levels and support is at $38. After creating a recent high, it is possible the stock may pullback in the short-term, as indicated by the currently declining on-balance volume. The stock still remains in a strong long-term uptrend, though, signaling further potential upside toward $46.
Parker Hannifin (NYSE:PH) is up a solid 20.63% in the last three months to $82.11, from $68.07. The stock sold off in July and August but has managed to recover much of the loss. The stock trades very close to the resistance level at $85.84. A rise above $86 would confirm an upside breakout and the potential for the stock to test the 2010 high at $99.40. Ideally, on-balance volume should also break above resistance, but the indicator still remains depressed from the mid-year decline. Support is at $75, and a drop below would signal potential weakness.
Tyco International (NYSE:TYC) has also had a good three-month performance, up 19.3% to $47.48, from $39.80. This stock too saw an an aggressive mid-year decline but has been exhibiting strength recently. Since mid-August, the stock has been moving higher in a choppy fashion, providing ample opportunity to buy pullbacks. The entry point is between $45 and $44, as this is currently where the 50-day moving average intersects, and support is provided by the short-term upward sloping trendline. A relatively tight stop can be used, as a drop back below $43 indicates potential weakness. On the other hand, a rise above $48.50 is likely to bring about a test of the resistance areas at $50.50, $52 and $53.38 (the 2010 high).
The Bottom Line
Industrial stocks often perform well when the economy is in recovery mode, therefore, these stocks can provide a barometer for the broader market. If these stocks continue higher, it is not only positive for those owning these stocks but the market in general. As these stocks recover, they will need to break through resistance and ideally do so with on-balance volume rising. If these stocks decline below support, it indicates weakness and likely weakness for the sector as a whole. (For more, see Technical Analysis: Introduction.)
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At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.