Over the past several years we have seen selling pressure intensify in metals and mining names as policy directives shifted away from this group. Not only was less money invested in coal, copper, materials and the like, but costly regulations put some of these companies against the wall and in many cases out of business totally. Stocks such as Cliffs Natural Resources (CLF) , Freeport-McMoRan (FCX) and U.S. Steel (X) are shadows of their former selves. Once boasting robust stock prices and strong balance sheets, these and many others have been gasping for air while slicing costs and jobs in order to survive.
Sadly, many companies did not make the cut and went away. Overseas, companies such as BHP Billiton (BHP) and Rio Tinto (RIO) were crushed under the intense distribution over many years. But with a shift in presidential administrations many of the fears that have existed due to high cost and renewable energy may have disappeared, so it's no surprise these stocks and many others have seen a resurgence.
Take a look at the SPDR S&P Metals and Mining ETF (XME) weekly chart below and notice the powerful move over the 200-week moving average, which has been above the price for years.
Why the sudden interest in names often tossed to the side of the road? For one thing, with a Trump administration there is the anticipation of more jobs created in areas that have been devastated since the Obama administration took over in 2009. During the presidential campaign Hillary Clinton was quoted as saying, "We're going to put a lot of coal miners and coal companies out of business." In just a few short weeks, some stocks have run up 70% to 100% in impressive fashion.
While those returns are robust, let's be reminded these stocks have been under long-term distribution for years, not months or days. What does that mean exactly? It's not an "all clear" signal yet, but we certainly like to see broad participation among stocks that have been latent for years.
The market does not lie to us. The action we have seen of late in these names is amazingly strong, but on very good turnover. Price levels that had presented strong resistance are being sliced through like a hot knife through butter. This is institutional buying, and we like to follow the institutions in markets, whether they are coming in or out.
Will this trend continue? It's hard to argue against momentum and strong trends.