Put Pedal to the Metals With Allegheny, Carpenter Tech

The market took a hard hit Friday on Google's (GOOG Quote), and more importantly, Caterpillar's (CAT Quote) earnings misses. What stood out to us about the Caterpillar news was the fact that sales were strong, but raw-material costs rose substantially. This suggested to us that demand for metals by the industrial sector remains high.

Combine the Caterpillar news with the strong 12% GDP number coming out of China, and the demand picture for metal continues to look strong. The metals stocks have acted as one of the core leadership sectors in this rally, and they are holding up very well on a relative basis. The relative strength really stands out, since we would have expected profit-taking and defensive selling in Friday's broad-based selloff.

In our experience, it's usually a bullish sign when a sector holds up and shows relative strength under these types of market conditions. Traders are showing reluctance to part with their metal positions, in spite of the selloff, which usually means the underlying story is compelling.

Metal Sector Breadth

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