Chinese Stocks Fell, Led to Unrest in Stock Markets around the World
(Continued from Prior Part)
Agony of the material sector
The material sector is represented by the Materials Select Sector SPDR ETF (XLB). It’s already falling due to a slowdown in the global economic activity. This sector includes companies in the exploration and production of metals, all kinds of chemicals, fertilizers, and industrial gases that are basically raw materials. As a result, the fall in the demand for these materials directly impacts commodity prices, commodity-related stocks, and commodity exporting countries or economies.
The recent economic data from China showed the slowdown in its economic activity. China is the largest consumer of fuels, metals, and other commodities. The devaluation of the yuan following the sell-off to boost Chinese exports actually makes these commodities dearer to China. They’re all dollar-denominated commodities. It creates the likelihood of another fall in the demand for these commodities. Also, the devaluation of one currency triggers the devaluation of other currencies of export-oriented economies. It leads to a cascading effect. Anticipating this type of scenario, the prices of material stocks fell on Thursday, January 7, 2016.
Moving average analysis
The above chart shows the closing prices of the material sector’s stocks that traded below their moving averages.
Below are the yields of the above-stated stocks as of January 7.
- Freeport-McMoRan (FCX) at -9.1%
- Nucor (NUE) at -5.1%
- Dow Chemical (DOW) at -3.8%
- CF Industries Holdings (CF) at -4.7%
- LyondellBasell (LYB) at -4.1%
- Alcoa (AA) at -4.0%
- Allegheny Technologies (ATI) at -11.0%
The beta value of the mining stocks is greater than other stocks. This implies the stock’s volatility. Therefore, Freeport-McMoRan, Nucor, and Allegheny Technologies fell to a great extent.
Copper and steel suffered a huge fall in demand especially after August 2015. As a result, the trailing one-year returns of Freeport-McMoRan and Allegheny Technologies were -75.8% and -70.6%, respectively.
None of the above stocks traded over their respective 100-day, 50-day, and 20-day moving averages. This suggests that the stocks went through a downward trend for more than 100-days.
Compared to analysts’ stock price target, the stocks’ average upward growth potential is 57%.
Next, we’ll look at the key stocks of the SPDR S&P 500 ETF (SPY) as of January 7, 2016.
Continue to Next Part
Browse this series on Market Realist: