This week we will be taking a look at the Cyclical Sector. We do not write about this sector very often because it is often a difficult sector to evaluate but we think that this week we have a good idea of what it will be doing in the next few months. The cyclical sector contains such companies as Alcoa (AA), Ford (F), International Paper (IP) and Sears (SHLD). We now have a bearish view on this sector for the foreseeable future.

You can see in the chart below that this sector has been in a trading range since early 2004. At this time it appears to be getting ready to drop back down to the support level (blue line). The Stochastics indicator also shows that it is overbought and starting to fall. The economy is still strong but the rate of growth is starting to fall so that is also usually a bad sign for cyclical companies. We anticipate the index to fall from its pervious close around 792 to at least 710 but if it goes above 820, we would stop out of this recommendation.

As we mentioned above, there are a lot of well-known companies in this sector. Motorola (MOT), Caterpillar (CAT) and Whirlpool (WHR) have outperformed the sector index for the last year while 3M Company (MMM), Dow Chemical (DOW) and Ford (F) did not do as well as the index. iShares also offers an exchange traded fund for the cyclical sector, the symbol is IYC.

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