Wednesday, May 12, 2010

S&P 500 Industrials Sector: Encouraging Fundamentals (XLI Update)

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Overview
XLI is up +7.76% for the week, down -0.64% for the month, up +16.44% for the year, and up +110.68% since the March 9, 2009 market bottom. Very positive manufacturing data has been released so far this year  for the USA, Europe, China, and the World, so I remain bullish on XLI.  Q1 earnings season data (revenues, eps, outlook) has been very encouraging for the industrials sector.

The Conference Board Leading Economic Index
On Monday, April 19, TCB issued its March LEI for the USA, as noted in my previous post.  The March LEI was up a very positive +1.4% to an all-time high of 109.6.  This economic metric is very encouraging for USA equities and for the industrials sector in particular, e.g. XLI.

XLI ETF & Portfolio Holdings
XLI is an Industrials ETF designed to represent the industrial sector of the S&P 500, which is 10.75% of the entire S&P 500. The industrials are varied, including aerospace and defense, building products, construction and engineering, electrical equipment, conglomerates, machinery, commercial services and supplies, air freight and logistics, airlines, marine, road and rail, and transportation infrastructure companies. See the XLI Industrials portfolio holdings here.  This is a very popular and liquid ETF.

XLI Daily Chart
Below is the XLI daily chart for 2010.

Noteworthy Closing Prices on Daily Chart below:
Current Close 32.36 (Higher yellow horizontal line)
2010 YTD 4-29-10 High 33.36
YE 12-31-09 27.79
Month EMA 29.01 (Lower yellow horizontal line)


XLI: Encouraging Fundamentals




Intermediate-Term Trend
The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, signalled a bull market for the XLI on March 9 (the 1 year anniversary of the bottom for XLI, btw). This signal remains intact.  That is, the 25d sma is greater than the 50d sma.

Resistance
The current closing price, the higher yellow horizontal line, is now above a lot of recent resistance.  However, XLI is still below the 2010 YTD high, which is recent resistance. XLI is trading in the middle of the September 2008 sideways trading range.  XLI is also trading in the July, August, September 2006 (plus early 2006) area.

Support
There are multiple levels of support below, including the April 19 dip of 32.03.  Other notable near term support is the previous 2010 YTD of 29.57 on January 11.  There is long term support back in July through September 2006.

Moving Averages
XLI regained the 25 day simple moving average today which is very encouraging.  The 25d, 50d, 100d, and 200d sma's are all ascending. All the moving averages are being pulled upwards by the XLI rally.

Uptrend Line
The uptrend line, a rate of price ascent, is from the March 9,.2009 closing low of 15.36 up through the February 8, 2010 closing low of 26.90. The February 8 closing low was the bottom of the previous 2010 pullback. XLI bounced above this trendline on February 9, tested the trendline on May 6 and 7, yet has remained above.

Downtrend Line
A downtrend line, a rate of price descent, not shown, is from the October 9, 2007 all-time closing high of 41.90 down through the May 19, 2008 peak closing high of 39.72. XLI is below this trendline, which is now in the 32.90 area.

Relative Strength Index (RSI)
RSI 14 day = 46.95 is reasonable, above the recent low of 36.77 on May 7
RSI 28 day = 53.77 is reasonable, above the recent low of 43.88 on May 7
The RSIs are reasonable, leaning towards oversold, indicating XLI can go higher.

MACD (12,26,9)
The MACD has been bearish since April 30, but is uptrending..

Long-Term Trend
The lower yellow horizontal line is the 10 month exponential moving average from the monthly chart, which I have overlayed on this daily chart. That is the line in the sand, so to speak, for the long term signal of a bear market. The XLI is above this signal at the current close, the higher yellow horizontal line.

Conclusion
USA and Global industrial, jobs, leading indicators, and GDP data are positive and signalling economic growth, which is bullish for XLIXLI has rallied from the recent pullback and is approaching the 2010 YTD closing high. The RSIs are reasonable, leaning towards oversold.  The MACD is bearish but uptrending.  I think XLI will ultimately break through upside to yet more new 2010 highs. Ongoing consolidation trading and mild pullbacks will occur as XLI stair steps upwards at a slow pace. The intermediate term trend and long term trend remain bullish.

Disclosure
We have a long position in XLI.


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Seeking Alpha