ETF Trends
ETF Trends

Saddled with a year-to-date loss of almost 7%, the Industrial Select Sector SPDR (NYSEArca: XLI) is the third-worst performer among the nine select sector SPDRs. Only the Utilities Select Sector SPDR (NYSEArca: XLU) and the Energy Select Sector SPDR (NYSEArca: XLE) have been worse.

Unfortunately, for industrials, a sector frequently used as a gauge of economic health and broader market sentiment, things could worse before they improve. A strong U.S. dollar and declining energy sector capital spending are among the issue plaguing industrial ETFs this year. U.S. manufacturing, which makes up 12% of the economy, could remain weak on the lingering effects of the dollar and fuel costs. [Industrial ETFs Could Also Slip On Oil]

“Peaking in February, the ETF has lost roughly 9% through Monday’s trading. And this month, it joined utilities, energy and basic materials as the only ones with moving average death crosses in place. Each has its 50-day average below its 200-day average and that is not a healthy condition,” reports Michael Kahn for Barron’s.

Dow component General Electric (NYSE: GE) is XLI’s largest holding at 10.2% of the ETF’s weight, but the fund’s nine other top 10 holdings contain four other Dow components – 3M (NYSE: MMM), Boeing (NYSE: BA), United Technologies (NYSE: UTX) and Caterpillar (NYSE: CAT). That means the Dow has an indelible impact on XLI and that’s not good with the blue chip index down 3.6% over the past week.

XLI has other problems, including exposure to downtrodden transportation stocks. Year-to-date, the iShares Transportation Average ETF (NYSEArca: IYT), the ETF proxy for the Dow Jones Transportation Average Index, is off 11.5% and the largest transportation ETF is getting no help from the industry groups represented in the fund. Stymied by tumbling shares of railroad operators and airlines that have surprisingly fallen in unison with oil prices, transportation exchange traded funds have recently been disappointments. [Transportation ETFs Need Help]

Railroads and airlines combine for over 14% of XLI’s weight. Add to that, there is more dour technical news for XLI, an ETF that has bled $1.92 billion in assets this year.

“But the bad news on the technical front does not stop there. In June, it moved below chart support and during the market’s July rally it managed to reach that level once again – where it was unceremoniously stopped and fell away in a hurry. That is a classic example of a technical breakdown and test. Bears missing their chance to get out in June rushed in to sell when they had their second shot in July,” according to Barron’s.

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.