While technology’s rebound may have garnered the most attention during early August’s trading, subsectors of basic materials have shown notable improvement.
While technology’s rebound may have garnered the most attention during early August’s trading, subsectors of basic materials have shown notable improvement. Among those to outpace technology subsectors like semiconductors in recent trading are precious metals (DWAPREC) and metals non-ferrous (DWAMETA), which have gained 20% and 14% since the beginning of the month (7/31 – 8/13).
The rally within the precious metals and metals non-ferrous subsectors has brought notable increases in participation, with the bullish percents for both subsectors reversing into Xs from the mid-teens to above 50% and 34%, respectively. While short- to intermediate-term trending indicators have seen similar improvements, highlighting stocks returning to buy signals and climbing above major trending moving averages, the magnitude of positive near-term relative strength has potentially been more surprising.
Since the beginning of August, the RS in Xs indicators for the precious metals (^RSXPREC) and non-ferrous metals (^RSXMETA) subsectors have increased more than 50% and nearly 40% after falling to or near single digits on their charts. Recall that the indicator measures the percentage for stocks maintaining positive near-term market relative strength against the S&P 500 Equal Weight Index (SPXEWI). In the case of the precious metals RS in Xs indicator, the rebound occurs after the indicator had fallen to its lowest level since 2014, while the metals non-ferrous RS in Xs indicator matched the 2024 low, marking only the third time the indicator has fallen to 10% or lower going back to the beginning of the indicator’s history in 1995.
Though trading over the past few days has seen the RS in Xs indicators for both subsectors slow their pace of improvement, last week’s trading was historic. Each of the days from 8/4 - 8/10 saw improvements that ranked within the top 10% of all trading days examined for the precious metals RS in Xs indicator going back to 1995. The 21% climb on 8/7 ranked as the 16th best in terms of one-day improvement for the precious metals RS in Xs indicator, while the 5-day stretch ending on 8/10 ranked as the 19th best 5-day stretch, with an increase of 48%. Meanwhile, the non-ferrous metals RS in Xs indicator witnessed improvement that was a little steadier, relatively speaking. Each of the days from 8/5 - 8/10 saw improvements that ranked within the top 1% of all trading days examined for the non-ferrous metals RS in Xs indicator going back to 1995. The 8.5% climb on 8/10 ranked as the 9th best in terms of one-day improvement for the non-ferrous metals RS in Xs indicator, while the 5-day stretch ending on 8/10 ranked as the 4th best 5-day stretch with an increase of 31%. For both RS in Xs indicators, the one-day improvements highlighted are the best since COVID days in March 2020, while the 5-day periods discussed marked the largest increase since November 2008 (precious metals) and December 2008 (metals non-ferrous).
The trending and relative improvement of the precious metals and basic materials groups pushed their scores on the Asset Class Group Scores (ACGS) page back above 3 for the first time since May and June of this year. Additionally, the basic materials sector has climbed from 10th to 7th within the NDW DALI Asset Class Rankings, grabbing 20+ buy signals since the beginning of August and ranking as the most improved sector for the month so far.
As examples of recent action within the aforementioned subsectors and the mining space, below are the charts of the State Street SPDR S&P Metals & Mining ETF (XME), VanEck Gold Miners ETF (GDX), and Sprott Copper Miners ETF (COPP). GDX and COPP returned to a buy signal in July, prior to XME and last week’s rally. GDX and COPP witnessed positive trend changes as both rallied to levels not seen since June. On a relative basis, all three ETFs saw their market relative strength charts return to a column of Xs, highlighting positive near-term relative strength by the mining space over the market. XME and GDX saw their fund’s score climb back above 3, while COPP’s fund score moved above 4. Each ETF has pulled back from recent rally highs, so investors will see if there is further fodder for this rally in the mining space.
While the mining space has shown notable near-term improvements—reflected within the indicators and ETFs discussed—potential exposure to the subsector will likely still maintain an equal to underweight position until longer-term leadership can be exhibited.
