Broader mining and materials sector exchange traded funds, such as the SPDR Metals & Mining ETF (NYSEArca: XME) and the Materials Select Sector SPDR (NYSEArca: XLB), have been solid performers this year.
In the case of XME, that ETF has been benefiting from rebounding areas of the mining industry that were previously punished, including gold, coal and steel. Many industrial metals and miners rallied on the belief that China would support growth through stimulus measures, augmenting demand for metals while enticing investors to jump back in. Moreover, the depreciating U.S. dollar made USD-denominated resources cheaper for foreign buyers. The ongoing global low-yield environment also pushed investors toward more attractive assets, like commodities.
Up 84.5% year-to-date, the VanEck Vectors Coal ETF (NYSEArca: KOL), which tracks the coal industry, is one of this year’s best-performing non-leveraged exchange traded funds. That after several years of being a laggard.
China has helped coal prices and the industry reverse course this yer after Beijing imposed a five-day week working week for domestic mines in an attempt to diminish an oversupplied market.
“Since 2011, it has been nothing but downhill for the XME. Eventually, in the late 2015-early 2016 decline, the XME even broke below its 2008 lows. Fast forward to today and we do see some reasons for optimism, however. First off, the undercut of the 2008 low was recovered by March of this year, presenting a potential “false breakdown”. Furthermore, we have seen follow-through in the XME’s rally off of its low. And in July, the XME broke above the Down trendline connecting the 2011 and 2014 highs, on a linear chart,” according to See It Market.
The VanEck Vectors Steel ETF (NYSEArca: SLX) is one of 2016’s best-performing industry exchange traded funds.
Since the start of March, U.S. steel has been gaining ground when Congress passed a new customs and trade enforcement bill that allowed the Obama administration to take action against Chinese dumping. The Department of Commerce imposed a 265.79% tariff on Chinese steel, according to the Wall Street Journal.
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“The XME has plenty of resistance to get through as it attempts to move through all of the post-2008 overhead supply. That include relevant Down trendlines on a log scale chart. However, the fact that the XME has rebounded off of this post-2011 Down trendline is a positive in a potentially longer-term developing turn,” reports See It Market.
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.