More materials sector Performance Ranking trades

On 12 August, I set out entry criteria for a trade in the materials sector using my Performance Ranking (PR) method. This trade was entered on 15 August and now is around break even, give it time.

There are two more stocks from the SPDR Materials (XLB) on which PR method trades have set up. The method combines two factors

• Weekly RSI divergences for the stock against the ETF
• A PR divergence for the stock, when ranked against all ETF components

Owens Illinois (OI) vs SPDR Materials (XLB)

• A weekly RSI divergence has formed against the February 2013 peak
• A weekly MACD divergence has also formed
• The RSI has moved below the intervening low (purple arrow), an ideal entry condition for RSI divergence trades
• The PR had divergence at the peak and has fallen to 56 on its scale of 0 to 100, the lowest since December 2012

Daily chart

• The 14 day RSI set up with a divergence against the February high, first above 70 (20 March) and since then, below 70, matching my RSI divergence criteria
• The pair broke below the 25 July low (blue arrow) on Friday 30 August

A short position in OI against XLB is opened at Friday’s close of 0.7022, with the stop loss above the high of 0.74767 from 01 August, 6.5% higher.

International Flavors & Fragrances Inc (IFF) vs SPDR Materials (XLB)

• An RSI divergence formed against the late March high and the intervening low was broken
• The PR divergence formed from early June until the pair made its high in early July

Daily chart

• The RSI formed divergence first above 70 (in March) and since then, below 70
• The entry signal is a break below the 20 June low (blue arrow). The stop loss will then be above the 06 August high (purple arrow), 5.8% higher

A short position in IFF v XLB will be opened on a break below the 20 June low.