Back in the summer of 2023, we wrote that industrial stocks were working on a secular breakout. As seen on the weekly chart of industrials (XLI) in this article, the secular breakout is being back-tested. Whether industrial stocks will be bullish in 2024 will become clear in the coming weeks. The market will decide whether industrials will be bullish in 2024 not later than in December of this year.
While it may feel like a stock market crash is underway, currently, we can clearly see a thorough test of critical support levels. We outlined conditions to know whether stocks will tank in 2024, conditions are not met currently.
It has been very clear, throughout 2023, that industrial stocks were leaders in the stock market.
But will they continue to lead in 2024? In other words, will industrial stocks be bullish in 2024 or not?
In order to answer that question, we will focus on the chart, the chart only. We will take a top-down approach.
The weekly chart of industrial stocks, represented by XLI ETF, has a very clear message: the multi-year rising channel must be respected in order to qualify as a ‘bullish’ in 2024.
Back in 2022, XLI ETF fell twice below its rising channel, but recovered within a period of 3 to 5 weeks. In 2020, it took some 13 weeks for XLI ETF to recover, but then again 2020 qualifies as a once-in-a-century type of anomaly in markets.
If we zoom in on the same chart, look into the daily timeframe over the last 2 years, we can see that XLI ETF essentially is back to where it was 2 years ago. The breakout that started in July of this year (fine green horizontal line) is essentially being backtested now.
While the above chart may look choppy, it is a consolidation that might have a bullish resolution. In essence, we want XLI ETF to trade above 98 points, on a weekly closing basis, in the coming 3 to 8 weeks, in order to be bullish in 2024.
In our Momentum Investing portfolio, we hold one industrial stock that can double in case XLI ETF confirms its secular breakout and turns bullish in 2024. We have selected a few more top industrials stock picks in our latest alert [Rotation] Which Sectors & Stocks Are Likely To Outperform In The Coming 6 Months (accessible to current Momentum Investing members but also any new member).
