Materials Sector Poised For Upswing (XLB, AA, DOW, MON, FCX)

We have been looking over the sectors analyzing which ones may be the first to move higher if the markets continue upwards. One that interests us is the materials sector. A solid ETF that tracks this sector is the Materials Select Sector SPDR (Nasdaq: XLB). Currently, it is trading at just under $31 per share with a 52-week high of $35.38 per share.

Looking at the annotated chart of the Materials SPDR we can see that the technical indicators are showing us strength coming back into the ETF and sector. We are looking for a breakout of the $31 per share price to be a major bullish indicator to the upside.

If you are looking for stronger names within the sector that could outperform the sector overall, we like most Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX). Freeport-McMoRan has a great fundamental base with large amounts of copper and gold reserves which, although not yet mined, makes it an attractive investment for fund managers. Even better, traders can encompass option strategies because its options are actively traded as well. Currently trading at $73.33, the 52-week high of the stock is $90.55.

Another stock that would be worth looking at is Monsanto Company (NYSE: MON) as momentum traders like to play this name as well. If the sector does kick to the upside, this name could also spike as well. Monsanto Company is currently trading down -0.35 cents today at $75.22 per share. Its 52 week high is $93.35.

The last stock to highlight is Alcoa Inc. (NYSE: AA) which is currently trading for $13.45 per share. With a beta of 2.19 Alcoa Inc. could also move quite a bit higher if the sector lifts.

If you are looking to reduce some risk while limiting upside, you could create a synthetic dividend by selling April-2010 15 strike calls of Alcoa for roughly $0.50 which could help lower your break even stock price to below $13.00 per share over that 64 day period. That would create a maximum profit of roughly over $2 per share over the 64 days until April expiration. This would be a great return on an annual basis.