It doesn’t happen often, but materials led all sectors on Tuesday, with State Street Materials Select Sector SPDR ETF (XLB) gaining 2%, marking its largest one-day advance since Nov. 21. The turnaround back then kicked off a rebound that has now persisted for six weeks. XLB logged a three-day winning streak as of Tuesday’s close, with a three-day rate of change of 4.74% — a substantial move for this ETF. In fact, it was the largest three-day advance since the April lows and the second biggest move going back to January 2023. XLB Materials finally trying to break out Zooming out, it’s clear that the strong advance from the lows now has produced a well-defined bullish cup-and-handle pattern, with Tuesday’s move blasting through the key resistance zone. As a result, we now have a live pattern in play with an upside target near 56. That level may look far away from this perspective, but on a percentage-move basis it’s not unreasonable. The challenge, of course, is that XLB is not known for sustaining momentum over long periods, with follow-through often proving fleeting rather than persistent, which means continued buyer interest will be critical. XLB vs. SPX: still in a downtrend As a result, periods of outperformance versus the S & P 500 over the past few years have been temporary at best, which was evident in the relative-strength line when XLB attempted to rally a few weeks ago. The good news is that XLB has already eclipsed two of its steepest downtrend lines during the recent comeback. However, the larger, longer-term downtrend (shown in red) remains a major obstacle that has yet to be tested. We’ll continue to track this progression, but it’s important to note that much more needs to occur before XLB can be considered a viable alternative investment on a relative basis. XLB vs. SPX: the long-term view Zooming out to the full history of XLB relative to the S & P 500, a few things stand out. First, the long-term downtrend we just discussed extends all the way back to mid-2008, with June marking the major inflection point. While there have been brief periods of relative outperformance along the way since then, the materials sector has generally struggled to maintain sustained investor interest — especially during cycles when high-growth stocks dominated leadership. That said, it’s important not to overlook what happened before that 2008 peak. Materials consistently outperformed the S & P 500 on a relative basis, beginning around September 2000 and continuing through mid-2008. While technology unraveled over the following years, other areas of the market — materials included — helped keep the S & P 500 closer to its highs for a time. What’s also interesting is that even after the major indices officially bottomed in late 2002, XLB continued to outperform the S & P 500, maintaining that relative strength all the way into 2008. In other words, leadership from this group persisted well beyond the broader market’s low. There’s no secret signal here for when a similar shift might begin again. The focus first should remain on monitoring XLB on an absolute basis — specifically whether it can capitalize on the bullish formation discussed earlier — and then watching for higher lows versus the S & P 500. Identifying and staying aligned with emerging relative strength, regardless of the sector, remains one of the most important objectives for investors. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
