On Friday, the S&P 500 faced an above-average decline of more than 2.5%. Despite the drop, the index has yet to break out of its August trading range. The same can be said for most of the sectors – the swing lows from earlier this month were held. The exception, however, was Materials. With Friday’s poor performance, nearly one-third of its members were setting new 52-week lows. Here’s a closer look at the developments:

The worst performer of the group has been Commodity Chemicals. Prices are below a downward sloping 200-day moving average, and are now at the lowest levels since 2013, the year this index began. A swing high from early that year is the nearest support level. Momentum is clearly in a bearish range but has not gotten oversold on this most recent breakdown. If the sub-industry can get back above $123, the false break-down combined with a positive momentum divergence could revert prices back to the 200-day mean.Commodity Chem.PNG

Diversified Chemicals have been weak as well. This month, they tried and failed to get above the 161.8% extension from the 2007 – 2009 decline. Bulls will want to see prices regain $333, but if the May lows fail to hold, the 2007 high of $226 comes into focus. Diversified Chem

The Metals & Mining industry just set new lows for August, but with prices near a flat 200-day moving average, the group lacks a trend. A break below $90 or above $110 would be significant, but until then it’s a waiting game. Notably, momentum hasn’t gotten oversold on this most recent pullback.Metals and Mining.PNG

Fertilizers & Agriculture Chemicals is a similar setup – no trend. The group hasn’t gone anywhere for a decade, but if they can get above $1531 again, the 2007 highs at $1830 are in play. Meaningful support lies near $1300.Fertilizers and Ag Chem.PNG

Containers & Packaging is trying to reestablish an uptrend. Prices tried to break down in the fourth quarter of last year, but managed to recapture $233. The chart is ok as long as they hold those 2015 highs, but the $278 resistance level is key for longer-term bulls. Containers and Packaging.PNG

Specialty Chemicals is having trouble getting through the $1278 level. The index is still in an uptrend, but the trend and momentum are weakening. After nearly two years of trying, prices could be ready to break out with some conviction toward $1500. A failure to do so and subsequent break of the uptrend line would signal either more time is needed or the uptrend is over.Specialty Chemicals.PNG

Speaking of levels that are hard to get through, Construction Materials has been fighting with $255 for more than 10 years. It may have finally broken out. It’s spent most of August consolidating above, with $317 as the next extension. Momentum has weakened into the new highs though, so the index isn’t out of the woods. Bulls don’t want to see prices back inside the multi-year trading range.Construction Materials.PNG

The best performer of late has been within Industrial Gases. The group had been setting new highs for most of 2019, but, after a negative momentum divergence, dropped sharply in August. The trend is still very much intact, with prices well above their 200-day moving average, but the index is squarely between support near $1280 and the next extension at $1633. Industrial Gases.PNG

Looking ahead, for the Materials Index to halt its decline, it needs its winners to keep winning and its losers to stop losing. If this highly cyclical group can do that and get upside resolutions in a few other areas, the sector, and most likely stocks as a whole, will be doing just fine.

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