A shift in investor sentiment over the past couple of weeks has moved capital into market segments that are traditionally known as hedges to market volatility. Companies within the utilities, precious metals, commodities, and materials sectors have performed relatively well. In the paragraphs below, we'll look specifically at charts from across the materials sector and try to determine how active traders will position themselves over the months ahead.
Vanguard Materials ETF (VAW)
Retail investors who want to seek the performance of a niche sector such as materials often turn to exchange-traded products such as the Vanguard Materials ETF (VAW). During periods of uncertainty, investors often prefer to allocate capital toward companies that extract or process raw materials because they usually have relatively predictable business models and benefit from higher underlying commodity prices.
Taking a look at the chart below, you can see that the price of the VAW ETF is trading within a confined range and that the nearby 200-day moving average (red line) appears to be acting as a significant level of support. Based on this pattern, followers of technical analysis will watch for a break above the upper trendline, and most will likely use the recent crossover between the moving average convergence divergence (MACD) and its signal line as confirmation. From a risk management perspective, stop-loss orders will most likely be placed below $121.25 or the ascending trendline near $120, depending on outlook and risk tolerance.
Linde plc (LIN)
With a market capitalization of approximately $102 billion, Linde plc (LIN) represents the top holding of the VAW ETF and is a leading company when it comes to industrial gases and engineering. The company offers oxygen, nitrogen, argon, helium, hydrogen, and a variety of other rare gases that are utilized in a variety of sectors such as health care, petroleum refining, manufacturing, food, and aerospace. Given the scale of the company, it is not possible to briefly describe the underlying business. What is important to know is that, based on its scale of operations, the performance of the company's stock is often looked to as a leading indicator for where the rest of the sector could be headed.
As you can see below, the price of Linde shares is trading within a defined uptrend and has recently fallen toward the combined support of an ascending trendline and its 200-day moving average. Based on this pattern, traders will likely expect the upward trajectory to continue, and many will likely look to place orders near current levels to maximize the risk/reward. Stop-loss orders will most likely be placed below $177.57 in case of a surprise sell-off or shift in market sentiment.
DuPont de Nemours, Inc. (DD)
In North America, one of the leading companies within the materials sector is DuPont de Nemours, Inc. (DD). Taking a look at the chart below, you can see that the bulls have managed to push the price above the nearby resistance, which suggests that target prices will likely be placed near the 2019 high of $84.22. The bullish crossover between the MACD indicator and its signal line could be confirmation of a continued move higher and could be enough of a catalyst for some proactive traders place orders in related companies in hopes of the same type of breakout.
The Bottom Line
There are few sectors in the market that have performed as well in recent months as the materials sector. As discussed on the charts above, the bulls are clearly in favor of the momentum, and recent price action suggests that prices will continue the trend higher into 2020.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.