The building and construction sector in the United States has strengthened in recent months despite rising tensions and talks of trade wars. Followers of technical analysis are looking to the various chart patterns and thinking that the run higher could just be getting started. In this article, we'll take a closer look at the charts and try to determine exactly how active traders will be positioning themselves over the weeks or months ahead.
Invesco Dynamic Building & Construction ETF (PKB)
Active traders who are interested in companies that offer construction and related engineering services may want to look at the Invesco Dynamic Building & Construction ETF (PKB). This niche fund offers focused exposure to 30 U.S. companies from across the sector and looks to be fairly valued based on fundamental metrics such as price-to-earnings ratio (P/E), price-to-book ratio (P/B) and return on equity (ROE).
Taking a look at the chart pattern below, you can see that the rise so far in 2019 has recently triggered a bullish crossover between the 50-day and 200-day moving averages (blue and red lines, respectively). The long-term buy signal is known as the golden cross and is often used to mark the beginning of a long-term uptrend. The combined support of the long-term moving averages along with the ascending trendline is also creating clearly identified levels for the placement of buy and stop orders. Stop-loss orders placed below $28.52 or $27.73 depending on risk tolerance clearly put the risk-to-reward ratio in the favor of the bulls.
Vulcan Materials Company (VMC)
As warmer weather starts to take hold across the U.S., construction projects are also starting to get off the ground. As demand for products such as aggregates, asphalt, and concrete also start to turn upward, one company that could be worth a closer look that will be there to meet the demand is Vulcan Materials Company (VMC).
Taking a look at the chart, you can see that the trend is sharply higher and that it is in clear control of the bulls. As discussed in the case of PKB, the rise so far in 2019 has also managed to send the price of Vulcan Materials shares above the 200-day moving average, which also triggered a golden crossover between the 50-day and 200-day moving averages. The strong momentum is expected to continue, and technical traders will likely look to set a trailing stop-loss order below either the dotted trendline or the 50-day moving average depending on their outlook.
Lennox International Inc. (LII)
As mentioned above, as the weather starts to warm across North America, it is common for investors to increase exposure to building and construction stocks. One key area that gets much attention are those companies involved in the heating and cooling of residential and commercial buildings. One of the leaders in this segment is Lennox International Inc. (LII).
As you can see from the chart below, 2019 has been kind so far to investors in Lennox International, and the strong upward trendline suggests that this will likely be the case for weeks or months to come. Followers of technical analysis will likely look to the bullish crossover between the moving average convergence divergence (MACD) and its signal line (shown by the blue circle) as confirmation of a move higher. Most will likely place stop-loss orders below $263.83 in case of a sudden shift in the fundamentals.
The Bottom Line
Bullish traders are often on the hunt for which sectors may be gaining traction and where to allocate capital. Based on factors such as fundamental metrics, strong chart patterns and impacts of seasonal factors such as weather, one group that could be worth a closer look is the building and construction sector.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.