Fund of Steel: ETF Posts Stealth Surge

August 13th at 7:30am by Tom Lydon

Materials and mining ETFs have turned in some impressive performances in recent weeks and the list of winners runs the gambit from a downtrodden coal fund to volatile gold and silver mining ETFs. Do not forget about steel.

Lost in the commotion surrounding activist investors taking in stakes in stocks found in ETFs such as the Materials Select Sector SPDR (NYSEArca: XLB) and the resurgence of precious metals mining funds such as the Market Vectors Gold Miners (NYSEArca: GDX) that so many traders and investors were hoping to see is a quiet rally in the Market Vectors Steel ETF (NYSEArca: SLX). [Have Gold Miner ETFs Finally Hit Bottom?]

Prior to its recent rally, SLX was beset by a variety of factors, including falling prices and oversupply from Chinese producers. Then there has been an influx of cheap supply from Japanese steelmakers due to the yen’s recent depreciation. [Steel Slowdown Highlights Deflationary Pressures]

However, as has been the case with the Market Vectors Coal ETF (NYSEArca: KOL), SLX is finding firmer footing due in part to some decent Chinese economic data. Chinese imports grew 10.9% last month while industrial production increased 9.7%. Those data points helped spark KOL higher. KOL is home to some producers of metallurgical or coking coal, a key ingredient in the production of steel. [Coal ETF May Finally be Turning Higher]

SLX is up 6.1% in the past week and 12.4% in the past month. On Monday, the steel ETF closed above its 200-day moving average for the first-time since March. “The long-term downtrend that SLX has been in is now broken, but now the ETF is attempting to get above a key resistance level that formed back in May. If the ETF can break above this resistance over the next day or two, traders may be looking at a new long-term uptrend forming,” according to Bespoke Investment Group.

This is how intense the rally in SLX has been: Three of the ETF’s top-10 holdings have posted double-digit gains in the past three days and seven holdings overall have achieved that feat, according to Bespoke. That group includes Brazil’s Vale (NYSE: VALE), the world’s largest iron ore producer and SLX’s second-largest holding. Rio Tinto (NYSE: RIO), the ETF’s largest holding, is up 8.2% in the past three days.

Cliffs Natural Resources (NYSE: CLF) was nearly a $15 stock last month and closed near $24.50 Monday. South Korea’s Posco (NYSE: PKX) “has the elements in place for an upside breakout of its own, including rising momentum indicators and a break through its 50-day average,” reports Michael Kahn for Barron’s. Cliffs and Posco combine for over 10% of SLX’s weight.

Further cementing the notion that buyers are stepping into SLX is that on Monday, the ETF touched $44 for the first time since May on volume that was nearly five times the daily average.

Market Vectors Steel ETF

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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