(Premium) Painting the Picture for Materials
The case for an overweight position in Materials hasn’t been too compelling of late, but that doesn’t mean there aren’t things to get excited about.
The sector is home to one of our favorite charts in the world right now. PPG is finally above 138 after challenging that level five times over the last year. The more times a level is tested, the more likely it is to break, so we’d been watching closely for the move. With PPG above 138, we want to own it with a target above 170, near the former highs.
The other thing we love about PPG is that it has industry support. The S&P 500 Specialty Chemicals sub industry just put in a failed breakdown below its 2022 low. We’re looking at the group relative to the S&P 500, so a mean reversion in this chart would mean Specialty Chem stocks are outperforming the rest of the market. You can’t beat the market unless you own the stocks that are beating the market.
A.O. Smith has a similar setup to PPG. For all of 2023, it’s been consolidating above the neckline of an inverse head and shoulders reversal pattern. 63 is the level we’re watching for AOS. IF we’re above that we think it goes back to the former highs at 85 – about 25% higher from here.
Linde is another one of our favorites. It’s above the January 2022 highs, which offers both support on any further pullbacks and a clear level to manage risk against. That’s also the 261.8% Fibonacci retracement from the 2020 selloff. If LIN is above 350, our target is the 423.6% retracement from that decline, up near 470.
Martin Marietta Materials is coiling up for a big move. Whether that’s up or down remains to be seen. If it breaks out above 380, which is the 161.8% retracement from the COVID decline, I think we’ll have our answer. In that scenario, we think it blows past those former all-time highs at 440, so we want to be buying with a target above 500.
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