The industrial sector led the market higher last week and Moneyshow’s Tom Aspray has found two stocks in this sector that have completed major bottom formations making them likely market leaders in 2013.
Stocks managed minor gains Monday, and while the market internals were positive, they were not impressive. The NYSE Advance/Decline has continued to improve and is now very close to making new highs. A strong move to new highs in the A/D line would signal a much sharper rally.
Stocks are higher early Tuesday as the S&P futures are close to the key resistance at the December 3 highs. A strong close above these highs would set the stage for a test of the year’s high at 1474.51 in the S&P 500 or $148.11 in the Spyder Trust (SPY). The beaten down PowerShares QQQ Trust (QQQ), which tracks the Nasdaq 100, is unlikely to come close to its September high of $70.58.
In yesterday’s column, Best Sector Bets for the New Year, I discussed the four sectors that were outperforming the S&P 500 and looked the strongest technically. The industrials sector as represented by the Select Sector SPDR Industrials (XLI) became a market leading sector last week.
One market leading group that is part of the industrial sector is the S&P Construction & Engineering Index. It was up 1.6% Monday versus a small 0.2% gain in the SPY. Two stocks in this group appear to have completed long-term bottom formations, which gives them excellent upside potential.
Chart Analysis: The weekly chart of the S&P Construction & Engineering Index tested the support in the 207 area in mid-November and closed strong last week.
Granite Construction Inc. (GVA) is a $1.22 billion heavy construction company that provides civil contracting and provides construction materials. It has a current yield of 2.3%.
NEXT PAGE: Another Stock Showing Bullish Action
Foster Wheeler AG (FWLT) is a $2.52 billion dollar heavy construction company that is based in Switzerland. Recent data shows that they have $709 million in cash with only $152 million in debt. The chart formation for FWLT could also be called a reverse H&S, but it is not as clear.
What it Means: The positive weekly analysis of the industrial sector and the bullish action of construction & engineering industry group suggests that they could be market leaders well into 2013.
These two stocks also appear to have completed significant bottom formations, but I would be a patient, smart buyer and wait for a pullback to buy.
How to Profit: For Granite Construction Inc. (GVA), go 50% long at $30.44 and 50% long at $30.06, with a stop at $28.43 (risk of approx. 6%).
For Foster Wheeler AG (FWLT), go 50% long at $22.92 and 50% long at $22.46, with a stop at $21.44 (risk of approx. 5.5%).