Industrial Intelligence: Industrial ETFs Could Rally Some More

The industrial sector is the sixth-largest sector weight in the S&P 500. The group and its related exchange traded funds (ETFs) have been solid though not spectacular performers this year. Within the broader industrial sector, transportation stocks have also been solid.

Just look at the Industrial Select Sector SPDR (NYSEArca: XLI). The largest industrial ETF is higher by 12.6% year-to-date, good for one of the better performances among the sector SPDR ETFs. XLI’s sturdiness and similar traits for rival industrial ETFs come against the backdrop of challenges for the industrial sector.

Headwinds remain for the industrial sector. The sell-off in the oil markets has weighed on capital spending from the energy sector as producers hold off on new projects, pressuring U.S. industrial companies and sector-related exchange traded funds.

Moreover, the industrial space is being weighed down by a slowing global outlook and a strengthening U.S. dollar.

Related: Lingering Issues For Industrial ETFs

However, the charts on XLI indicate more upside could be on the way for the benchmark industrial ETF.

“Based on technical analysis, it is extremely common to see a major trendline act in tandem with a 50-day moving average to provide support on attempted pullbacks such as the one from earlier in the month (shown by the blue arrow). The strong bounce off of support levels is a clear indication that the bulls are still in control of the momentum, and active traders will likely use these levels as guides for placing stop-loss orders. Specifically, traders will likely maintain a bullish outlook on the fund until it closes below $57.14,” according to Investopedia.