Lighten the load

The iShares CDN Materials Sector Index Fund (XMA) replicates the performance of the S&P/TSX Capped Materials Index less the fund expenses and tracking error. The top holdings as of July 3, 2009 are Barrick Gold Corp 17.7%, Potash Corp of Saskatchewan 16.48%, GoldCorp Inc. 14.90%, Kinross Gold Corp 7.5%, Teck Resources Ltd-Cl B 4.73% and Agnico-eagle Mines 4.73%.

On a year-to-date basis the materials sector is up 15.3% and was up the most of all sectors last week at .9%. Since the low in November last year the materials sector has been on a steady climb, up almost 70%. Most of that move occurred in November and December. The current price crossed the 50-day moving average in December last year the first time and has remained above that indicator for the most part with the exception of March, April and more recently in June and July. Interesting that it only crossed the 200-day moving average in May and that signal is downward sloping. The relative strength, volume and moving average convergence divergence signals are all negative. From a technical perspective the signals are bearish.

Fundamentally, the materials sector relies on worldwide recovery and the news of late has been a downer for the materials index. In the last month the Canadian dollar has been declining as the US$ regained its safe-haven status. On June 2, 2009, the Canadian dollar closed at .9246 vs. US$ and is now closer to .86 vs. the US$. The unemployment rate in the US is the highest since August 1983 at 9.5% up from 9.4% in May. The consumer confidence numbers for June came in under 50. Asian markets are declining on concerns the economic downturn could be longer than anticipated. In the short run materials don’t have too many positives but I think it should be a long-term core holding. A good article to read is in the June issue of National Geographic on the global food shortage “The Global Food Crisis, The End of Plenty” by Joel K. Bourne Jr. This supports the theme of materials being a core holding in your portfolio longer term. From a seasonal perspective the end of the run is usually June so it maybe time to lighten the load for the summer.