The industrial machinery industry is starting to slow significantly and the outlook is neutral. The index this year has been underperforming the market significantly after outperforming in 2004 by 8%.

We see companies in this group struggling with their pricing power. This comes at a time when steel and other raw materials are increasing in price. Needless to say, this makes profit margins thinner. It also appears that in the long term, Asia and China in particular continue to increase their production capacity. This will likely cause overproduction, increased competition and a generally difficult environment for manufacturers of industrial machinery.

Let's take a look at recent technical developments. Industrial machinery is represented here by the S&P Industrial Machinery Index (INMA). You can see here that INMA has met significant resistance in the 330 area. The trend (as measured by ADX) was at its peak in early 2004 and has since exhausted itself.

We're setting a support level at 300 and resistance at 330. If there is a breakthrough at resistance or support in the next 3 months, then it may be time to reassess. For now, we remain neutral.

Key Sector Players

Martin Marietta Materials (MLM)

American Standard Companies (ASD)

Price Headley is the founder and chief analyst of BigTrends.com.