After Boeing smashes earnings, industrials face one more key test

Industrial stocks are showing strength.

The sector has surged more than 9 percent this year — the second-best performer behind only energy — and is on pace for its best month in more than two years.

Key player Boeing soared more than 6 percent in premarket trading on Wednesday after posting earnings that easily topped analyst estimates. But this followed a disappointing quarter for Caterpillar. On Tuesday, two market watchers advised investors to hold off buying the sector until the noise settles and there's a better read on the sector as a whole.

"I don't think it's a buy anything in the sector setup, but I do believe that this week of earnings gives companies the way to restructure guidance because everything went bad in the fourth quarter," Michael Bapis said on CNBC's "Trading Nation."

Bapis, managing director of Vios Advisors at Rockefeller Capital Management, said a favorable regulatory environment for multinational companies could push these stocks higher, but that investors should wait to "see what earnings look like this week" and "re-evaluate on Monday."

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Caterpillar rebounded Tuesday, after sliding more than 9 percent Monday — its worst day since 2011 — following earnings. Minnesota Mining and Manufacturing also moved higher Tuesday after beating top and bottom line estimates. The company did, however, lower its guidance. Industrial giants GE and Honeywell also report earnings this week, before the bell on Thursday and Friday respectively.

Like Bapis, Miller Tabak's Matt Maley isn't buying the sector here despite recent strength.

"If you look at the chart on the XLI it bounced in late December off an incredibly important support level, its trend line going all the way back to the crisis lows back in 2009. Since then it's rallied very strongly," he said.

The XLI, an ETF that tracks the biggest industrial names, was trading around $70 on Tuesday. Maley says this is a key level for the ETF since it was previously the support level but is now the resistance line.

Essentially, $70 used to be the level that the ETF would bounce higher from after being in a downtrend, but after the broader sell-off in the fourth quarter, $70 became the high level that the ETF continuously struggled to stay above.

According to Maley, if the ETF can meaningfully break above $70, there could be more gains ahead.

"If it can [hold above $70], maybe it shows that all the concerns over global growth aren't quite as bad as they thought they were," he said, adding to "keep an eye on Honeywell, how things react to that later in the week."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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