The industrial sector has been powering up lately.
The XLI S&P 500 Industrial Sector SPDR—which holds names like Boeing (NYSE: BA), Honeywell (NYSE: HON), and Union Pacific (NYSE: UNP), among others—has jumped 4% in the last week and is up more than 8% over the last month, far surpassing the S&P 500’s gain of just 1% over the last week and 6.6% over the last month.
And Todd Gordon, founder of TradingAnalysis.com, told CNBC that the sector could be gearing up for an even stronger move higher.
“I see a very powerful chart here [for the XLI] that is just aching to break potentially on resolution with the trade conflicts with China,” Gordon said. “As you can see, we are just knocking on the ceiling up around the $81-$82 region multiple times here.”
The XLI ETF has struggled to break above $80 for a little over a year, but on Thursday, it closed at $81.65.
“The market really, really wants to break through here,” Gordon added. “I would like to put an option trade on in XLI to take us through the zone of resistance potentially into the $85 region towards the end of the year into early 2020.”
One stock in the sector Gordon is bullish on is John Deere (NYSE: DE).
“I like the chart setup in John Deere with the agricultural play and with obviously a Chinese deal getting closer and closer is the word around the street,” Gordon said. “We have also a pending breakout here above the $180 level in John Deere.”
John Deere hit an all-time high back in February 2018 of $175.26. In late October, shares touched that high again before breaking above resistance early this week turning resistance . On Wednesday, the stock retouched the level, confirming the new support.
Shares of the stock are just 1.2% below the $180 level Gordon is looking out for. And from there, the sky’s the limit as there’s no resistance left on the chart.
To take advantage of the move higher, Gordon says he’s buying the $180 call and selling the $185 call for $2.30 or $230 per options spread.