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Manufacturing Breakouts And The Market

04/20/11 08:55:50 AM
by Billy Williams

Manufacturing stocks are breaking out, revealing the potential to lead the market higher and offering bankable trades if you know what to look for.

Security:   AME, KNL, SLGN
Position:   Buy

For the last several decades, if you turned on any cable news program, you would have heard financial commentary pundits bemoan the loss of manufacturing jobs and the disintegration of the US economy. Manufacturing, even in a technologically driven country like the US, is critical to its overall growth and future prosperity because it is the gauge to which countries show that they make something worth buying and selling abroad overseas.

While some manufacturing jobs are gone forever, by looking at the emerging companies of the stock market, you can gain a sense that manufacturing in the US is on the move again and glean some insight as to what that means for the direction of the stock market.

More important, the emerging sector of manufacturers as leaders in the next leg up in the stock market gives traders a golden opportunity to profit.

FIGURE 1: AME. AME breaks out on an explosive gap fueled by a huge surge in volume.
Graphic provided by:
Ametek Inc. (AME) manufactures air-moving electric motors, power meters/transducers, heat exchangers, and electromechanical connectors with a relative strength rating of 88 within its group and is trading at an all-time price high after breaking through resistance on volume of over 500% of its 20-day average volume (Figure 1).

AME is under heavy institutional accumulation and is currently trading within one of the strongest sectors of the market, making it worth having on your stock list as a source of future trades as well as a potential stock leader.

Silgan Holding Inc. (SLGN) is a company that manufactures steel/aluminum/plastic containers for the food/beverage, personal/pet care, and chemical markets.

The company's stock is trading at an all-time high after breakout on April 13, 2011, on almost 1,200% of the normal 20-day average trade volume and has a relative strength of 90. See Figure 2.

FIGURE 2: SLGN. SLGN continues higher in dramatic fashion after smashing upper resistance on almost 12 times its normal volume level.
Graphic provided by:
The stock definitely has momentum on its side, but the massive up move may be under pressure at some point as buying levels off and the price action begins to contract within a range or pullback to take a breather before attempting another bull run. It is at this point that you might consider entering a position and ride the next leg up as the trend resumes.

Knoll Inc. (KNL) manufactures medium- to high-end business office systems, furnishings, seating, and storage.

The company has traded up through resistance recently on just over 400% on the 20-day average trade volume to reach all-time highs in price while also revealing that it is under heavy institutional accumulation. The company's fundamentals are strong while also maintaining a relative strength of 92, making it a high-performing stock in this current market. See Figure 3.

FIGURE 3: KLN. KLN is an emerging manufacturing stock supported by both high relative strength ratings and fundamentals before rising to new all-time price levels.
Graphic provided by:
The compelling factors: besides all of these stocks relating to manufacturing and having attractive fundamentals are that technically they are sound trades as well. All of them are moving higher through their individual resistance levels on explosive volume, which acts as rocket fuel, pushing them higher.

More important, the fact that they are trading at all-time price highs make them an actionable trade, especially when combined with higher volume at the time of the breakout. Statistically, stocks that trade at these new price levels are likely to continue upward while dragging the larger market higher as well.

It can be argued that manufacturing has been bloodied in the US but now, it is on the rise as new companies emerge with streamlined systems that take advantage of technology in order to increase both quality and production, giving them a strong competitive advantage to compete on a global level. The combination of fundamentals and technical factors reveal a sector gaining strength and, possibly, developing a new series of stock leaders in this market.

Billy Williams

Billy Williams has been trading the markets for 27 years, specializing in momentum trading with stocks and options.

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