Sector rotation in this market continues, and the agribusiness and chemical industries within the materials sector look to be heating up. While their performance on a relative basis is lackluster, on an absolute basis, there are several setups offering reward/risk scenarios skewed in our favor.
First, let's take a structural look at the VanEck Vectors Agribusiness ETF (MOO), which contains exposure to chemical stocks, as there is no exchange-traded fund (ETF) dedicated to that industry. Prices got back to their 2008 highs earlier in the year and have been consolidating since. A breakout above $66 would signal the beginning of a new long-term uptrend that targets $94.25.
From a tactical perspective, prices are back toward the top of an ascending triangle continuation pattern. If prices can break above $64.70, we'll likely see a move up toward the 161.8% extension of the 2015 to 2016 decline near $68.75. (See also: A Primer for Investing in Agriculture.)
While this ETF looks good on an absolute basis, it's important to note that it recently broke down from a multi-year consolidation pattern to new all-time lows relative to the S&P 500. While this failed breakdown provided some short-term relief, there's little evidence that this structural decline is over.
It's also worth nothing that, while the sector's relative strength vs. the broader market isn't great, we recognize that our readers have different portfolio approaches and mandates, so it's important to point out all potential opportunities in the market even if they're not among the best of the best on a relative basis (like technology or medical devices).
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