Last month I covered how the iShares Real Estate ETF (IYR) staged a ‘Death Cross', where the ETF's 50-day moving average had crossed below the 200-day moving average. I stated “With the stock below both averages, and the 200-day MA looking ready to curve downwards (and with other indicators such as On Balance Volume showing distribution), it looks like the Real Estate sector is entering a bear market.”
XLI, the SPDRs Select Sector Industrial ETF, may be about to join the group.
3M (MMM), the second largest holding in XLI, formed a Death Cross a few sessions ago. Union Pacific (UNP), the 5th largest holding, formed one in the beginning of May and has fallen about 10% since. Caterpillar (CAT) formed one back last October, recovered a bit in May, but was turned back by the 200-day moving average in what was a great setup to short the stock in late June (it is down 7% since).
As earnings season is just starting, the Industrial sector may be a good group of stocks to watch for clues on the economy and how other sectors might react. 3M Company is due to announce earnings on July 23rd, before the open. 3M missed expectations by $0.08 back in April. Another miss may send this stock off on another leg down.
As to how 3M stock has reacted to previous Q2 earnings reports, there is no strong seasonal pattern to fight against. Over the seven weeks following their Q2 releases, MMM has averaged a net gain of 0 (-0.1%). There were about as many years with gains as losses, and the stock has had large swings in both directions.
If 3M rebounds to its falling 50-day MA, but doesn't rocket past it, and 3M's Q2 earnings are lackluster or disappointing, a good short stock trade setup may present itself. Keep an eye on the other major industrial stocks. There could be many other good setups for bearish trades.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link: www.markettamer.com/seasonal
Copyright (C) 2015 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com.
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