Basic Materials Are Building More Upside

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Basic Materials had a really horrible first month of Autumn. The Dow Jones US Basic Materials Index dropped form a level of 360 all the way down to 306, 15%. But since then it has been clawing back.

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The chart above shows the quick move off of the bottom in the now well known ‘V’ shaped recovery. This was followed by some consolidation in a sideways pattern before a second leg higher, about the same length. The ensuing sharper pullback then found support at the prior consolidation area and Wednesday confirmed a reversal higher.

Some will look at this as a Elliott Wave starting on the 5th Wave higher. But it actually violates Wave principles on at least one count, as the 4th corrective wave entered into wave 1 territory.

But there is a complex pattern building. A 3 Drives. This calls for a third leg higher back to 360 again on this leg up. The current leg looks legitimate as the RSI and MACD are both also turning back higher.

You cannot trade the Basic Materials Index directly, but the Materials Select Sector SPDR ($XLB) is a very close proxy.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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