Signs just keep on creeping up that the materials sector is in
trouble and in today's episode of "As Materials
Tumble," the Market Vectors Steel ETF (NYSE:
) is in the spotlight. On light volume, SLX is down 0.7 percent
and while that may not sound like much, Wednesday's decline
extends a woeful start to 2013 for SLX and the ETF is now
flirting with a year-to-date loss of 18 percent.
To put that performance into context, the Materials Select
Sector SPDR (NYSE:
the worst-performing of the nine sector SPDRs in
the first quarter
, is still clinging to a year-to-date gain.
SLX's problems are not hard to identify. Just start with the
ETF's two largest holdings, Rio Tinto (NYSE:
) and Vale (NYSE:
). Those mining giants combine for over 26 percent of SLX's
weight. Rio Tinto's U.S.-listed shares are off almost 24 percent
year-to-date and things could get worse before they get better
for the Australian mining giant.
Not only are Australian exporters being crimped by a strong
Australian dollar, but the central bank there expects the mining
sector will peak later this year. The Reserve Bank of Australia
has already noted that sectors beyond mining and materials must
step up to help the world's 12th-largest economy.
Then there is Brazil's Vale, the world's largest iron ore
producer. Even with today's 2.4 percent pop, Vale's U.S. shares
are off 20.5 percent this year. In the case of this stock,
investors can debate what is worse: The company's status as the
world's leading iron ore maker or the fact that Vale is a
Brazilian firm. Brazil has given investors almost nothing to
cheer about for over a year now and Vale
is proving to be a drag on SLX and some other
marquee ETFs as a result
Investors should not just pick on SLX's foreign holdings. In
the past month, Nucor (NYSE:
) is off more than three percent. When accounting for the
Wednesday plunges of more than three percent in both Allegheny
) and Timken (NYSE:
), those stocks are both in the red in the past month. Steel
) is now about 3.7 percent over the same time. Those four stocks
combine for 17.5 percent of the ETF's weight.
The hits just keep on coming to SLX. Even before today, U.S.
) was down 12 percent since early March. That stock is now
flirting with levels not seen since March 2009. SLX also has the
misfortune of being home to Cliffs Natural Resources (NYSE:
), the shares of which have plunged more than 52 percent in the
past 90 days. Cliffs and U.S. Steel combine for about 6.8 percent
of SLX's weight.
Thus far in this piece, approximately half of SLX's weight has
been accounted for and none of the news is good. Since it an
equity-based ETF is moved by its underlying holdings, it is not
surprising to see that
SLX's technical situation is rapidly
. It appears the ETF is heading for its lowest closing price
since late May 2012.
Additionally, SLX's ability to defend $40 is vital to any
hopes of a rebound because the ETF has not closed below that
level in nearly four years.
For more on ETFs, click
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