In Monday’s Chart of the Day and Closer, we noted the recent outperformance of industrial metals relative to other commodities, namely precious metals like gold. Given the strength of industrial metals, in the equities space, stocks related to the steel industry have been surging in recent days. Over the five days through yesterday’s close, the Steel ETF (SLX) which tracks these types of stocks has been the top-performing ETF of the US groups screen in our Trend Analyzer with a nearly 8% rally as shown below. That massive rally has left SLX as the most overbought ETF of this screen. Other metal related groups like the Junior Gold Miners (GDXJ) and S&P Metals and Mining ETF (XME) have also been top performers.
While there are plenty of reasons for steel’s rally including bets on a recovery in global growth, seasonality also appears to play a role. As shown in the snapshot of our Seasonality Tool below, for the current week of the year over the past 10 years, SLX has been the top-performing ETF with a median rally of 2.26%.
With SLX’s massive rally over the past several months which has accelerated in part thanks to seasonal tailwinds more recently, the ETF’s long-term downtrend that has been in place since not long after its inception has now been broken. As shown below, SLX is now around its highest levels since April of last year. While that is a positive from a long-term perspective, on a shorter-term basis SLX is running very hot. As shown in the second chart below, the ETF currently trades over 2.5 standard deviations above its 50-DMA. That is a historically elevated overbought reading as it is in the 98th percentile of the historical range. Click here to view Bespoke’s premium membership options for our best research available.