Active traders often turn to metals and mining companies for gaining a level of portfolio protection during periods of uncertainty and heightened volatility. As markets continue to push toward all-time highs, portfolio protection may not be top of mind for many traders, but the charts discussed below suggest that metals and mining stock could be worthy of a closer look.
- Breaks beyond key levels of resistance on charts within the metals and mining sector suggest that this could be a group to watch over the coming weeks.
- Looking at the top holdings of key exchange traded funds (ETFs) in the sector provides a good way for active traders to find potential candidates for their next trade.
The SPDR S&P Metals & Mining ETF (XME)
Active traders who want to gain a broad level of exposure to the metals and mining sector often turn to popular exchange traded products such as the SPDR S&P Metals & Mining ETF (XME). Fundamentally, the fund comprises 23 holdings from across the sector with a weighted average market capitalization of approximately $8 billion. In the chart below, you can see that the fund has been trading within a defined range for much of the past year. The break beyond the resistance of the dotted trendline in November was a clear signal that the bulls were gaining control of the momentum across the sector.
Active traders are now taking note of the recent retracement toward the new-found support of the trendline and its 50-day moving average. The recent upward shift in the 200-day moving average suggests that we could be in the early stages of a prolonged uptrend. From a risk-management perspective, followers of technical analysis will likely set their stop-loss orders below one of the long-term moving averages, depending on risk tolerance, to protect against a sudden shift in market sentiment.
Freeport-McMoRan Inc. (FCX)
Active traders may be drawn toward analyzing the top holdings of the XME ETF such as Freeport-McMoRan Inc. (FCX). As one top copper mining companies in the world, Freeport-McMoRan is often closely correlated with global infrastructure spending.
In the chart below, you can see that the price is trading within a defined channel pattern. Followers of technical analysis will most likely use the ascending trendlines and the 50-day moving average as guides when determining the placement of buy and stop orders. To maximize the risk-to-reward of a trade, traders will look to buy near the support at $25.50 and sell near the resistance of the 52-week high of $32.49.
Base metals are generally plentiful and are used in a variety of commercial and industrial applications. These applications include copper plumbing, aluminum cans, and the steel used in automobile production. Because of their abundance, prices for base metals are far below those of both precious and rare earth metals. Their prices respond to changes in demand for the products for which the metals are used.
Carpenter Tech Corporation (CRS)
Another top holding of the XME ETF that could capture the attention of active traders over the weeks and months ahead is Carpenter Tech Corporation (CRS). As a leader in high-performance specialty alloy-based materials, the underlying demand from the aerospace, automotive, defense, energy, industrial, medical, and consumer electronics sectors should continue to propel the business of Carpenter Tech for decades to come.
In the chart, you can see that the price recently broke out of a short-term ascending triangle pattern and now looks poised to move higher. The surge in buying interest since November has also triggered a bullish crossover between the 50-day and 200-day moving averages. This bullish crossover is a common long-term buy signal used by followers of technical analysis and often marks the beginning of a major uptrend.
The Bottom Line
While markets are near all-time highs, much of the market's attention goes to dynamic sectors such as technology. However, bullish chart patterns across sectors that seem more mundane such as metals and mining suggest that now could be an ideal time to focus on companies that specialize in physical assets just in case of a spike in volatility or a sudden shift in market sentiment.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.