Mining Sector ETF Set for a Wild September

Investors yanked loads of cash out of the steel-loaded commodity fund in August

Among sector exchange-traded funds (ETFs), the steel-loaded SPDR S&P Metals & Mining ETF (NYSEARCA:XME) appears perhaps likelier than most to have a wild month of September. Our quantified data shows that XME sports a respectable 60% positive returns for the month over the last 10 years -- but the fund's average September return over that time frame is a loss of 2.34%. That's far and away the worst mean performance of the 31 ETFs we analyzed, despite XME racking up more monthly wins than losses in September.

Adding to the cloudy outlook for September is XME's very makeup. The ETF's top 10 holdings include a healthy dose of gold miners -- like Royal Gold (RGLD) and Newmont Goldcorp (NEM), which last week followed the SDPR Gold Shares ETF (GLD) to new highs. But then there are also quite a few steel stocks, like underperforming AK Steel (AKS) and Nucor (NUE), the latter of which just joined the VanEck Vectors Steel ETF (SLX) in falling to its lowest price since October 2016.

On a month-to-date basis for August, as of this writing, etf.com reports net outflows of $51.94 million for XME. That more than erases the $32.59 in net inflows racked up by the metals & mining ETF during the first seven months of 2019 -- meaning XME is now net negative for the year-to-date period, in the amount of $19.35 million. And more to the point, investors seem to have turned several notches grimmer on the prospects for XME, just ahead of the historically tumultuous month of September.

In fairness, a perfunctory glance at the ETF's chart over the last year is quite grim in its own right. XME shares have shed 25% of their value in the last 52 weeks, and over the course of this decline, the relatively unyielding resistance has emerged at the fund's 40-week, 200-week, and 320-week moving averages.

That said -- keeping with the unpredictable theme for XME -- there's reason to believe that a bounce could be on the horizon, at least in the short term. The ETF is fresh off a successful test of the $24 area, which has marked major lows for XME since September 2016, after briefly acting as resistance earlier that year.

Further, XME's 14-day Relative Strength Index (RSI) was docked at 44 by Friday's closing bell, after falling as low as 29 earlier this month. In the recent past, when XME's RSI has climbed back above 40 after falling to the oversold 30 benchmark or lower, it's preceded continued short-term strength in the shares. As such, the embattled commodities fund could be due for a rally -- at least back up to the vicinity of the overhead resistance levels displayed below.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, September 1.