Industrials (XLI) benefited greatly from the “Trump Trade”, but fell back to digest the gap up rally. It rallied again, but failed after overcoming overhead resistance at the prior November top. Now it is pulling back once again, which that has formed a bearish double top formation. The bearish double top’s minimum downside target would bring price down to the next level of support around 132.00.
To add insult to injury, on Thursday, XLI saw a Price Momentum Oscillator (PMO) Crossover SELL Signal. Participation has been sinking since the last top and, while percentages of stocks above key moving averages are above our bullish 50% threshold, the sector is clearly breaking down while the SPY makes new all-time highs.
A further issue is the negative divergence on the Silver Cross Index. It is also below its signal line, so the IT Bias is BEARISH. Relative strength is being sucked out of the sector right now.
Conclusion: Industrials (XLI) may have benefited from the election, but the shine has worn off the trade. More stocks are losing support at key moving averages and the IT Bias is BEARISH. This is a sector we likely want to avoid given the downside target of the double top formation is around 132.00.
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Helpful DecisionPoint Links:
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
Erin Swenlin is a co-founder of the DecisionPoint.com website along with her father, Carl Swenlin. She launched the DecisionPoint daily blog in 2009 alongside Carl and now serves as a consulting technical analyst and blog contributor at StockCharts.com. Erin is an active Member of the CMT Association. She holds a Master’s degree in Information Resource Management from the Air Force Institute of Technology as well as a Bachelor’s degree in Mathematics from the University of Southern California.
