XLI: Poised to Break Out
Fundamental Analysis
Technical Analysis
Establishing long and stopping out if the thesis above breaks such as we cross back below the creek.
Charts are:
Left (Daily)
Top Right (Point and Figure)
Bottom Right (Weekly)
- While macro headwinds remain strong putting pressure on "infrastructure stocks," most traders are sitting short or flat "economy" based stocks. Any upside surprises will cause them to play catch up on the trade.
- Strong run up in other sectors, especially Tech, will cause some rebalancing flows out of Tech (and probably stocks in general) into other sectors.
- While macro data has been generally mixed, weakening PMI, but strong consumer and labor market outweigh that. Weakening PMI (less demand of new goods) may come from the inventory build up most companies did post Covid. This is probably the "bull whip" effect, once inventory gets sold down and consumer proves to be strong then there will be heavy demand for production again. Job growth is especially strong in blue collar areas.
- Federal Reserve continues to seek to raise rates suggesting the economy is not as weak as one might think.
- Recent passage of the Infrastructure Bill will prove to be supportive of this sector.
Technical Analysis
- XLI has recently had a change of character suggesting it will continue its breakout
- Effort/Distance (Volume needed to move the shares) has been very positive and bullish suggesting there is minimal free supply
- Accumulation of the shares have competed (as per Wyckoffian Analysis)
- Point and Figure Price target sets up an approximate 20-25% move up; considering this is a smaller sector in the S&P500 it will prove favorable in the event of a rotation of sectors.
Establishing long and stopping out if the thesis above breaks such as we cross back below the creek.
Charts are:
Left (Daily)
Top Right (Point and Figure)
Bottom Right (Weekly)