4 Industry Groups to Avoid

05/21/2015 10:05 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

Clearly, the Dow Transports has not been the place to be this year, but other industry groups have been even weaker, so MoneyShow’s Tom Aspray studies the charts to see which other industry groups investors should continue to avoid.

The FOMC minutes had little impact on Wednesday’s markets as most already realized that a June rate hike was not going to happen. The heaviest selling was again in the Dow Transports as Southwest Air (LUV) dropped 9% and Delta Airlines (DAL) was down 5.6%.

Clearly the iShares Transportation Average (IYT) has not been the place to be this year as it is down 6.8% versus a 4% gain in the Spyder Trust (SPY). The weekly relative performance on IYT broke down in early April and it continues to plunge, signaling that it is still acting weaker than the S&P 500.

Of course, there are other industry groups that have been even weaker than the Transports as the DJ US Gambling Index (DJUSCA) is down 18.1% over the past three months led by a 32% decline in Melco Crown Entertainment (MPEL). Of course, some stocks in the index have bucked the trend as Churchill Downs (CHDN) is up 18.8% over the past three months.

So what other industry groups should investors continue to avoid?

chart
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Chart Analysis: The DJ US Gambling Index (DJUSCA) peaked in early 2014 at 1096 and dropped to new lows in April 2014, which confirmed a new downtrend.

  • This pattern of lower highs, line a, is still intact as it was tested twice so far in 2015.
  • The index is now closer to next major support, line b, in the 629 area.
  • The weekly starc- band is at 588.
  • The weekly relative performance dropped below its WMA in March 2014.
  • The long-term uptrend, line c, was broken in July.
  • The RS line shows a well established downtrend, line d, and it is well below its declining WMA.
  • The weekly OBV broke its support, line e, in September 2014 but has been holding up better than prices.
  • There is first resistance now in the 670 area.

The DJ Coal Index (DJUSCL) broke important support, line e, in July 2014, as it dropped below the 126 level. It is now almost 39% lower.

  • The weekly downtrend, line e, is clearly intact.
  • The recent rallies have failed at the 20-week EMA, which is now at 85.75.
  • The March low of 70.91 tested the daily starc- band.
  • The weekly relative performance dropped below its support, line g, two weeks before prices violated support.
  • The RS line is trying to bottom out but needs to first move through the downtrend, line h.
  • If this resistance is overcome, the RS then needs to surpass the early 2015 highs (see arrow).
  • The break of OBV support, line i, coincided with the violation of weekly chart support.
  • The OBV has been flat for the past few weeks.
  • There is first resistance at 87 with more important in the 96.30 area.

Next Page: Two More Industry Groups to Avoid

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chart
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The DJ US Training and Employment (DJUSBE) has dropped 17.4% over the past three months, which has taken it back to the weekly support at line a.

  • The decline in the index is primarily due to weakness in some of the small special niche companies as the larger Manpower (MAN) is up 9.6% YTD.
  • The weekly starc- band is at 125.92 with more important support at 117.75, which was the October low.
  • The weekly relative performance dropped below its WMA in late April.
  • The RS line is now reaching more important support.
  • The weekly OBV looks more negative as it has dropped to new lows going back to October 2014.
  • The next important OBV support is at line d.
  • There is initial resistance now in the 138-140 area.

The DJ US Railroads (DJUSRR) is down 12.7% YTD as the majority of holdings in the index are lower so far in 2014. For example, Kansas City Southern (KSU) is down 20.6% YTD.

  • The uptrend from the late 2012 lows, line e, was broken on March 20 (line 1).
  • The relative performance formed lower highs in February.
  • The RS line then broke support, line f, two weeks before the price support was broken.
  • The RS line has continued to drop sharply and the daily does not show any signs yet of bottoming.
  • The weekly on-balance-volume (OBV) also broke its support, line g, in March.
  • The volume has been heavy over the past ten weeks and the OBV is well below its declining WMA.
  • The declining 20-day EMA is at 1379 with further resistance in the 1400 area.

What it Means: Though some of the stocks in even the weakest industry groups can outperform the S&P 500 in the long run, buying stocks in market leading groups will pay off more often.

Of the four industry groups, DJ US Training and Employment (DJUSBE) looks like it has the best chance of bottoming out in 2015.

How to Profit: No new recommendation.

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