January 13th, 2012

Cement, Concrete and Aggregate Group: EXP

As subscribers know, my searches for suitable stocks to buy follow a strict process: evaluate the market through the guidance provided by the proprietary Market Momentum Meter, drill down to find the Industry Groups and, finally, zero in on those stocks with the best chart patterns.

I can’t tell you the Meter’s specific reading because that’s available exclusively to members but I can share with you that there appears to a glimmer of hope, a prospect of a slightly more positive tone after nearly a year of frustrating horizontal action.  So it’s appropriate to begin looking for some of the most promising Industry Groups.

I use IBD’s Industry Groups rankings three ways:

  1. The top ranked Industry Groups are those with the stocks currently showing the best relative strength performance.
  2. The Industry Groups that have advanced the most over the past four months (granted, an arbitrary time horizon) to offer a preview of which might soon become the top performers in the near future.
  3. The Industry Groups that have advanced the most above the 20-week moving average of their ranks.

The Industry Group ranked highest by IBD last Friday were 9 stocks comprising the Cement, Concrete and Aggregate Industry Group.  Another fact that makes this group so enticing is that, as the graph below depicts, Friday’s highest rank put it 112 places higher than its 20 week moving average …. the greatest span of any of the 197 Groups.  Plus, its rise in rank over the past 4 months was greater than any other Group.  In short, this Industry Group performed better than any other when measured by these three conditions:

One typical stock in the Group is EXP (Eagle Materials), a manufacturer and distributor of gypsum wallboard and cement in northern Nevada, California, the greater Chicago area, the Rocky Mountain region and Texas:

If I were a fundamental investor, I could probably come up with any number of stories, rationales and explanations for why stocks in the group should be bought.  Could it be because infrastructure spending will finally be evidenced?  Is it because the construction drought might finally be ending?  But I’m actually a Stock Chartist who looks at the pattern of price movements and sees that for the past four years, this stock as well as several others in the Group, has been stuck for the past four years. Whether one sees a double bottom or a horizontal trading range, it’s clear that the stock is now bumping up against a resistance trendline (or you may call it a “neckline”).

After such an outstanding climb, the odds are in favor of some profit taking now.  But this is a stock and industry group that probably should be watched and bought on the dips (unless the market surprise us by losing the little momentum it’s trying to build by turning and collapsing …. then all bets are off).

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