From Barron's Getting Technical column:
Even technical analysis recognizes that industries at the bottom of the economic food chain – basic materials – impact the economy and the overall stock market. If the market senses that business conditions will pick up soon then it rewards the stocks of companies that supply the basic inputs needed for manufacturing and other business efforts.
The charts show that the best we can say about the index tracking them is that the Dow Jones U.S. Industrial Metals and Mining index is in an intermediate-term sideways range within a long-term bear market (see Chart 1)
Chart 1
DJ U.S. Industrial Metals & Mining Index
For a few weeks earlier this year it looked as if stocks of companies that mine and refine non-precious metals such as copper and aluminum were getting their footing (see Getting Technical, “Copper, Uranium, Steel Stocks Forming Bottoms,” April 27). But with a May “smeltdown,” these basic industrial commodities producers have returned to their lagging ways. And as a group, they continue to probe new depths of underperformance – a trend that began in 2010.
The difference in performance between the sector and the broad market is quite remarkable. Since the end of the last significant market correction in 2011, the Standard & Poor’s 500 has nearly doubled while the sector has gone nowhere. I will leave it to others to ponder whether that has to do with the decline in manufacturing in this country but the key for this column is that the traditional harbinger of a healthy economy and stock market has been missing for years.
In short, weakness in industrial metals and mining stocks continues to leave the market without an engine. Clearly, it did not need that engine for the past few years but the market has a nasty habit of snapping back after periods, whether short or long, of imbalance. That should be a warning to bulls everywhere....MORE
