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The Basic Industries Sector Has Not Maintained QE Hype

Stocks in this article: XLB NEM AA DD DOW FCX MON

NEW YORK ( TheStreet) -- In dissecting the basic industries sector you find divergences among the different industries. Below, I profile two stocks in the nonferrous mining industry, two in diversified chemical, and one stock each for agriculture products, fertilizers, gold mining, steel producers and building materials.

All nine stocks are components of the Materials Select Sector SPDR Fund (XLB), which ended September with a positive but overbought weekly chart profile while. XLB closed Wednesday above last week's low at $36.31, but a close this week below $36.58 shifts the weekly chart profile to negative.

Fundamentally shows the basic industries sector just 2.1% overvalued following benchmark revisions based upon new data for September. Nine of the remaining fifteen sectors are more overvalued.

Among the nine stocks I am covering today, five have buy ratings and four have hold ratings. Back on July 31 when I wrote Trading the Undervalued Basic Materials Sector the sector was 14.7% undervalued, and six of these nine stocks had buy ratings and three had hold ratings.

Chart Courtesy of Thomson/Reuters

The daily chart for XLB ($36.55) shown above spiked to a new 2012 high at $38.57, two days after the FOMC announced the third round of quantitative easing, and since then it has traded lower.

XLB is below its 21-day simple moving average at $37.09 and above its 50-day and 200-day SMAs at $36.20 and $35.81. My annual and monthly value levels are $35.72 and $34.78 with an annual pivot at $37.72 and weekly and quarterly risky levels at $38.24 and $39.78.

Back on Aug. 23, I wrote Gold Stocks Lag the Breakout in Gold Prices discussing how gold shares were lagging the precious metal. On Sept. 10, I updated this story in Gold Stocks Continue to Lag Gold and in both stories and in today's post I profiled Newmont Mining (NEM).

On Aug. 23, Comex gold broke out above its 200-day simple moving average while NEM closed at $49.04, with its 200-day at $54.27. Then on Sept. 10, NEM closed at $51.36 with its 200-day at $53.26. The breakout for NEM came on Sept. 13 and on Sept. 21 trading as high as $57.93 for a gain of 18.1% since Aug. 23. Over the same time horizon gold gained 7.0%.

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