Profit-taking in basic materials could anticipate broader weakness in the group, especially if global growth concerns take center stage in the financial media (to say nothing of the minds of traders and investors) over the next few days and weeks.
So far only the more well-known of them chemical brothers – Dow Chemical (NYSE: DOW) and DuPont (NYSE: DD) – are showing persistent selling. Both stocks have closed lower for three days in a row as of Monday’s finish. And, of the two, it is DOW that made the more significant move lower on Monday, selling off by nearly two and a half percent to close just outside of short-term oversold territory.
In fact, shares of Dow Chemical were last oversold during a five-day sell-off in the first half of April. Finishing the pullback with a pair of closes in technically oversold territory, DOW reversed to trade higher for seven out of the last eight sessions.
But other chemical stocks may have just begun to sag under the weight of traders and investors taking profits and selling shares. Praxair Inc. (NYSE: PX), which traded to new, 52-week highs late last week, edged lower by nearly three-quarters of a percent on Monday before drifting slightly higher into the close. Pulling back even more significantly on Monday were shares of fellow chemical company FMC Corp (NYSE: FMC), down more than one and a half percent after a three-day rally took FMC to new, long-term highs.
For ETF traders, there are few ways to directly take advantage of the chemical component of the growing weakness in the materials space. That said, the major basic materials ETFs are significanatly weighted with chemical companies like those in this report, and are trading lower and in or near technically oversold levels because of this.
The Materials Select Sector SPDRS ETF (NYSE: XLB) and the ProShares Ultra Basic Materials ETF (NYSE: UYM) both reversed lower in Monday’s trading. And though neither fund is yet oversold – XLB actually has a small negative edge, while UYM has a short-term, positive edge of just over half a percent) – any additional selling in the first half of the week will likely find these stocks trading oversold by the second half of the week.
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David Penn is Editor in Chief of TradingMarkets.com