So far, one of the standout sectors in 2022 has been the SPDR S&P Metals and Mining ETF (XME).
And that’s a big change from last year…
For much of 2021 and the start of 2022, XME traded sideways inside an extremely tight range.
However, all that changed in February when XME dramatically burst higher.
From its February low to its April high, XME rallied almost 70%.
But as the chart below shows, after hitting that high XME soon retraced strongly.
After trying (and failing) to hold short-term support at around $57 in April, XME fell further through May.
When we last checked XME on May 25 (red arrow on the chart), it was fighting to establish a new and lower support level.
Now that this level has held, and XME is tracking higher again, I’m going to see what’s coming next.
Let’s look at XME’s chart…
SPDR S&P Metals and Mining ETF (XME)
Source: eSignal
The 50-day moving average (MA – blue line) shows the huge transition in XME’s long-term trend.
Up until February, it was tracking almost perfectly flat.
But as XME’s uptrend quickly gathered momentum, the 50-day MA also turned sharply higher.
On April 25, XME’s retracement from its April high was preceded by divergence between its share price and the Relative Strength Index (RSI – lower half of chart).
When buying momentum continues to wane, the share price eventually rolls over and falls too.
The sharpness of that fall is highlighted by the steep angle at which the 10-day MA (red line) crossed down over the 50-day MA.
Only when the RSI reached oversold territory (on or below the lower grey dashed line) and formed a ‘V,’ did the selling in XME subside.
And once the RSI gathered momentum, XME was able to hold new short-term support (orange line) at $50.
So, with XME’s subsequent rally, what am I expecting from here?
Let’s take another look…
SPDR S&P Metals and Mining ETF (XME)
Source: eSignal
On May 25, I wrote there was a key level I was watching – the RSI’s resistance (green line).
Back then, we noted that if the RSI repeated a previous pattern from April – by rebounding lower off resistance – XME would also turn down.
This previous pattern is what saw XME fall through short-term support at $57.
However, there was another potential move we discussed…
If the RSI broke through resistance – and into the top half of its range (above the green line) – then a bigger rally was in the cards.
As you can see, it’s this second scenario that played out…
The RSI broke above the green line and is now trying to establish itself in the upper half of its range.
And recently, XME added to the bullish sentiment by closing right on the 50-day MA.
The next test for this emerging rally is for the 10-day MA to cross back above the 50-day MA.
If the RSI stays in the upper half of its range – and the 10-day MA crosses above the 50-day MA – then this rally could have further to go.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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