Action over the past week has brought two notable changes to the NDW DALI Sector Rankings with Technology and Basic Materials climbing to 2nd and 5th.
Action over the past week has brought two notable changes to the NDW DALI Sector Rankings with Technology and Basic Materials climbing to 2nd and 5th, respectively. Technology overtook Financials for 2nd for the first time since very early February this year, while Basic Materials is in the top half of the DALI Sector Rankings for the first time since December 2023. Technology is now the most improved sector within DALI for the third quarter, while Basic Materials still maintain as the most improved within the sector rankings on a year-to-date basis.
Technology
While Semiconductors have often taken the limelight within Technology, recent improvement from a relative strength has brought a rising tide for the remainder of the sector. An intriguing example of financials yielding strength to technology can be found on the relative strength of SPDR Select Sector Technology Fund (XLK) versus the iShares Insurance ETF (IAK). While technology has been steadily on the rise in terms of DALI tally signal, insurance has now become one of, if not the weakest subsector within financials. This comes after insurance had been a stalwart for financials, and while the sector still ranks 3rd within the DALI sector rankings, much of that strength comes from banks and brokers.
While Communication Services and Technology have ranked 1st and 3rd (or vice versa) at points through DALI’s history, this marks the first time that the two sectors rank as the top two. With the correlation between the two sectors being high relative to others, this gives DALI a tilt toward technology and communication as the major themes.
Basic Materials
While precious metal stocks have rallied alongside gold and other metals recently positive relative strength has persisted for quite some time and ultimately sustained the basic materials sector and the broader commodities asset class in their current positions within DALI’s RS rankings. In some cases, like that for the VanEck Gold Miners ETF (GDX), the ETF has maintained a market relative strength buy signal since May 2024. To dive into more on action within gold specifically, check out last Friday’s (9/5) feature from the Daily Equity Report.
Recent positive relative strength for the basic materials sector has come from other subsectors, like steel. The VanEck Steel Index ETF (SLX) has rallied 6% in Q3 so far, placing the fund up 20% on a year-to-date basis. SLX has maintained a positive near-term market RS against the S&P 500 Equal Weight Index (SPXEWI) since March of this year, and returned to a peer RS buy signal against the SPDR Select Sector Materials Fund (XLB) in July. Similarly, SLX returned to an RS buy signal against the SPDR Select Sector Utilities Fund (XLU) in July after having been on an RS sell signal since May of last year – providing evidence of basic materials moving above utilities within DALI. Last Friday’s action brought the RS chart against XLU back into a column of Xs, favoring SLX, and giving SLX positive near and long-term RS.
Given SLX recent rally and potential upcoming test of resistance in the mid-$70s, a partial position could be considered here while investors see if the fund show additional upside. Initial support can be found at $67. Additionally, the recent rally to highs by mining relative funds (example (GDX)) will likely cause investors to hit pause on additional exposure at this time. Look for consolidation at current price levels or a pullback toward the middle of the 10-week trading band before considering.
