Active traders are always on the hunt for bullish chart patterns that represent a macro-level trend in a broad market segment. As of late, breakouts on charts from across the materials sector, which we'll discuss below, suggest that this niche could be one to watch for the remainder of 2019.
For those unaware, companies that conduct business in the materials sector span construction material, containers and packaging, metals and mining, chemicals, and paper and forest products. As you'll see from the charts, followers of technical analysis are particularly interested in buying into this sector because of clearly defined levels for the placement of buy and stop orders.
Materials Select Sector SPDR Fund (XLB)
Analyzing the chart patterns of popular sector funds such as the Materials Select Sector SPDR Fund (XLB) is often one of the best methods for gaining a sense of broad market trends. As you can see from the chart below, the bulls recently pushed the price above the resistance of a key horizontal trendline. The break above $58 suggests that the bulls are in control of the momentum and that prices could be poised to make a move higher over the short run.
Those who are interested in a longer-term view will likely want to note the bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle). This common long-term buy signal is often used by followers of technical analysis to mark the beginning of a major uptrend. From a risk management perspective, stop-loss orders will most likely be placed below $56.99 or $54.36, depending on risk tolerance and investment horizon.
The Sherwin-Williams Company (SHW)
When it comes to paint, coatings, and related products, there are few players better known than The Sherwin-Williams Company (SHW). With a market capitalization of approximately $47 billion, there are few companies within the specialty chemicals industry with the same level of economies of scale.
Taking a look at the chart below, you can see that the price has broken above an influential trendline on higher-than-average volume. The breakout was due to second quarter earnings, and based on the pattern, it seems as though the price could be headed even higher from here. Active traders will most likely look to buy on a retracement toward the new-found support level and place stop-loss orders below the trendline or the 50-day moving average to protect against a sudden shift in sentiment.
Ecolab, Inc. (ECL)
One of the most common chart patterns used by followers of technical analysis is known as the ascending triangle. The pattern's popularity can often be attributed to clearly identified levels of support and resistance, which indicate to traders where to place buy and stop orders. One of the most interesting ascending triangle patterns that is in the process of forming in the market today can be found on the chart of Ecolab, Inc. (ECL).
As you can see from the chart below, the well-defined pattern has been taking shape since early June, and it appears as though a breakout could be days away. Bullish traders will keep a close eye on this chart because the price has already surpassed the psychological $200 level, volume is increasing, and it looks well positioned to close above the trendline. A close above the dotted resistance will likely act as a catalyst for a sharp move higher, and based on the pattern, target prices will likely be set near $220 – the entry price plus the height of the pattern.
The Bottom Line
The materials sector is often overlooked by investors in favor of more lucrative areas of the financial market. However, based on the patterns discussed above, it appears as though now could be the ideal time to consider buying.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.