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When it comes to portfolio construction, it can pay to respectful of certain indicators. In quality bull markets you want basic materials to at least keep up with the broad market. Of late the basic materials ETF (IYM) was 14% below its highs of last spring. If history is a guide, this is a sign of weakness, not strength. The first chart shows that on Jan-31, IYM and FCX were making bearish patterns and that a breakdown in these two would be sending a negative message for the future direction of the market.

 

 

The second chart reflects a breakdown in IYM and a breakdown in the Junk Bond ETF (JNK). Last spring IYM and JNK broke support and in the months ahead, the broad market followed their lead.

 

 

If history is any guide for determining risk positions and exposure right now, investors should respect these breakdowns.

 

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