This New 52-Week High Means More Gains Ahead

This isn't a sector full of high-flying technology stocks...

I'm sure you didn't talk about it at Thanksgiving dinner. But you shouldn't ignore this sector today...

The Industrial Select Sector SPDR Fund (XLI) is up 120% since bottoming in March 2020. That's a big move, given that XLI holds a basket of "boring" industrial stocks... think companies like railroad operator Union Pacific (UNP) and construction giant Caterpillar (CAT).

But history shows the gains aren't over yet. The recent surge in price has led to a new 52-week high. And that means more profits are on the way.

Let me explain...

It's easy to look at a sector that's up 120% and think the opportunity is over. After all, the recent run-up has to end at some point. And when you get in after a stock has climbed a lot, it feels like you could be buying near the end of the rally.

That kind of thinking can really hurt your portfolio, though. That's because trends can last much longer than you'd expect...

Sure, industrial stocks are up a lot since bottoming in 2020. But that alone doesn't mean they have to fall. In fact, today's setup shows that the opposite is true.

XLI hit a new 52-week high last month. We can see it in the chart below...

This basket of industrial stocks is now in uncharted territory. But this isn't a warning sign – it actually signals more upside ahead.

Since 1998, buying after similar setups has led to winning trades 79% of the time. And it tends to lead to outperformance...

For 21 years, XLI has been a decent performer... returning 6.1% in a typical year. But buying after a new 52-week can lead to better results with a higher win rate.

Similar cases have led to 4.1% gains in three months, 7% gains in six months, and an 8.4% gain over the next year. And that's just the base case with today's setup...

For example, the largest move after a new 52-week high in industrial stocks was 31% in a year. But the downside wasn't nearly as bad. Only three of the 14 times we've seen this setup led to losses... and the largest loss was 11%.

In short, industrial stocks are up a lot. But that's no reason to dismiss the sector today. The new 52-week high we saw last month points to more gains ahead.

If you want to add another U.S. sector to your portfolio, history shows that buying industrial stocks right now is a decent bet. And the simplest way to do it is through shares of XLI.

Good investing,

Chris Igou

Further Reading

After a record October in the stock market, you might think the biggest gains are over. But based on history, we could see even more upside ahead after these types of moves... Read more here: A Massive Month for Stocks Points to a 17% Gain.

"Nobody wants to buy at the peak of a rally," Chris writes. But buying into a strong uptrend is typically a great bet. And that's the setup we're seeing in one commodity today... Get the full story here: Oil Hits a Seven-Year High... With More Gains to Come.

Market Notes
HIGHS AND LOWS

NEW HIGHS OF NOTE LAST WEEK

Apple (AAPL)… iconic tech giant
Quest Diagnostics (DGX)… medical data
AbbVie (ABBV)… pharmaceuticals
CVS Health (CVS)… drugstores
Invitation Homes (INVH)… real estate “landlord”
Lennar (LEN)… homebuilder
NVR (NVR)… homebuilder
Home Depot (HD)… home improvement
Sherwin-Williams (SHW)… paint
W.W. Grainger (GWW)… industrial supplies
Fastenal (FAST)… industrial supplies
Cintas (CTAS)… uniform supplier
Tractor Supply (TSCO)… rural lifestyle retailer
Procter & Gamble (PG)… consumer goods
Hershey (HSY)… “Global Elite” chocolatier
McDonald’s (MCD)… burgers and fries

NEW LOWS OF NOTE LAST WEEK

Wayfair (W)… home goods
Comcast (CMCSA)… cable TV