Over the past several years, we have seen selling pressure intensify in the metals and mining industry as policy directives shifted away from this group. Not only was less money invested in coal, copper, and other materials, but costly regulations put some of these companies against the wall, and in many cases, out of business totally. Stocks like Cliffs Natural, Freeport McMoran and US Steel are a shadow of their former selves. Once boasting robust stock prices and strong balance sheets, these and many others have been gasping for air, slicing costs and jobs in order to survive. Overseas companies such as BHP Billiton and Rio Tinto were crushed under the intense distribution.
But with a shift in the new US administration’s stance on coal and infrastructure improvements, many of the fears that have come about due to high cost and renewable energy have disappeared. It’s no surprise that stocks in the metals and mining industry have seen a resurgence.
Take a look at the XME weekly chart below, and notice the powerful move over the 200 week moving average, which has been sitting above the price for years.
Why the sudden interest in metals and mining names? With a Trump administration, there is anticipation that jobs will be created in areas that have been devastated over the past eight years. In just a few short weeks, some stocks have run up 70-100% in impressive fashion.
While those returns are robust, let’s remember that these stocks have been under distribution for years, not months or days. These recent moves up are not an “all clear” signal to buy, though we certainly like to see broad participation from stocks that have been latent for years.
The market does not lie. The action we have seen in these names is amazingly strong and on very good turnover. Price levels that had been resistant are being sliced through like a hot knife through butter. This indicates institutional buying, and we like to follow the institutions in markets – whether they are coming in or out. Will this trend continue for the metals and mining industry? It’s hard to argue against momentum and strong trends.
Copyright: graf_montekristo / 123RF Stock Photo
