Monday, October 1, 2012

Oct 01. Keeping An Eye On Chemical Stocks.

With the uptrend from June in its mature phase I expect that stock groups associated with capital spending will perform better in the late stages of the rally. According to Martin Pring the industry group rotation process has a tendency to work during intermediate-term rallies and reactions as well as cyclical ones. Though the Gold Mining stocks stole the show in the Materials sector, the Chemicals is another industry in the sector that is worth attention too.

The Dow Jones US Specialty Chemicals Index ($DJUSCX) is steadily moving upward in an ascending trendchannel since June and recently printed the new yearly highs. To reach these new highs the index had to overcome the strong resistance in the 580 area (yellow area) now turned into support. Last week the index successfully back-tested the new support remaining within the trendchannel boundaries. The following index action/consolidation should be considered constructive as long as the index stays above the 580 support zone.
The chemicals stocks with the similar pattern to watch:
Eastman Chemical Co. (EMN)

FMC Corp. (FMC). A reversal Hammer candle at the lower trendchannel boundary confirmed by a long white candle.

Disclosure: Long FMC calls.

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