Some of the stocks to watch within this sector include: Caterpillar and Deere. Caterpillar (CAT) decreased to a low of 50.50 in February after last month’s construction spending was released. The stock bounced around the 144 Fibonacci EMA on the dailies and it is positioned to regain and surpass its 52 high of 64.42. Deere (DE) is in a similar position after bouncing off its 144 Fibonacci EMA on the dailies in February and positioning itself to surpass its 52 high of 60.16.
Construction Spending indicates demand for expansion within the economy. A major portion of the spending is brought by government spending for infrastructure. The other components include residential and non-residential construction. Both these numbers dipped due to bad weather in December.
The ISM manufacturing index for February decreased to 56.5 compared to 58.4 for January 2010. The value of the index is measured between 0 and 100. A value over 50 tends to indicate economic growth through healthy corporate profits and higher stock prices. A value below 50 indicates an economic recession leading to steady or lower interest rates and rallying the bond market. The ISM manufacturing index has been growing consistently for the past 6 months.
The material sector will likely get at boost as manufacturer’s demand for raw materials increases when there is higher than expected ISM manufacturing index. This sector includes raw materials such as chemical manufacturing, paper, gold, silver, steel, and other metal mining stocks. What needs to follow is the supply side from higher durable and non-durable goods numbers, and factory orders. So far those numbers have been gaining momentum pushing for positive upside within the manufacturing sector.
Some of the stocks to watch within this sector include: Gold, Oil, and Utilities. These stocks will trend lower when ISM manufacturing takes a dip. The strength of the dollar will also affect these stocks as it has an inverse relationship to commodities. As the dollar grows stronger expect these commodity stocks to trend lower.
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