Aug. 16, 2017 4:55 p.m. ET
Even when the market as a whole is in a long-term trend, there are always crosscurrents to track. Technology continues to power the market while energy heads south. However, there now seems to be a slight shift toward a more defensive posture, even among the bulls. I looked at a few improving utilities stocks earlier this month. And now, the consumer-staples sector is getting a bit more love this month than it has all summer.
This is a subtle change and not sector-wide, so it certainly does not call for a huge reallocation. However, with some household-name stocks in soft drinks, consumer nondurables, and even adult beverages setting new highs, it pays to take a nibble.
Let’s start with the Consumer Staples Select Sector SPDR exchange-traded fund (ticker: XLP). While its trend since the election remains to the upside, it is just barely so. It suffered a rather sharp selloff in June, but has been on the mend since early July.
A more important chart is its performance against that of its alter ego, the Consumer Discretionary Select Sector SPDR ETF (XLY). Both of these consumer-oriented sectors continue to lag the leaders in this market, but we can still glean important information in the way these two dance with each other.
Right now, the defensive staples group is threatening a major performance gain versus the more aggressive discretionary group.
A ratio of the two ETFs, usually presented as discretionary divided by staples, shows the sharp performance shift over the past three weeks in favor of staples (see Chart 1). Sharp-eyed chart watchers will also notice that the peak in the ratio last month occurred at the same level as it did in November 2015. Back then, the market was about to slide into its final leg lower before the current bull market began in February 2016.
Should the ratio fall even further, it would break the trendline in place since last summer. That would be a significant shift in the underlying powers of the market and suggest further money rotation into defensive areas ahead.
I want to caution that chart features on ratios such as resistance and trendlines should be taken with a grain of salt, since they are created by math. Such turning points are not actually traded by investors, but they still can be good guides to the overall condition of the market.
This week, packaged-goods giant
Procter & Gamble
PG 0.2603036876355748%
Procter & Gamble Co.
U.S.: NYSE
USD92.44
0.24
0.2603036876355748%
/Date(1502917236208-0500)/
Volume (Delayed 15m)
:
7447182
AFTER HOURS
USD92.44
%
Volume (Delayed 15m)
:
518120
P/E Ratio
25.547909239145454
Market Cap
235111275274.616
Dividend Yield
2.983989614885331%
Rev. per Employee
684821
More quote details and news »
(PG) broke out to new all-time highs (see Chart 2). Technical indicators are lined up to support the move, and the company posted higher earnings in the most recent quarter despite a slump in consumer spending.
To be sure, part of the recent rally can be attributed to speculation over a proxy fight with activist investor Nelson Peltz. Should that resolve, the chart could easily change.
Another consumer giant,
PepsiCo
PEP 0.10927124485164327%
PepsiCo Inc.
U.S.: NYSE
USD119.1
0.13
0.10927124485164327%
/Date(1502917338616-0500)/
Volume (Delayed 15m)
:
2277985
AFTER HOURS
USD119.2
0.100000000000009
0.08396305625524769%
Volume (Delayed 15m)
:
95934
P/E Ratio
25.25820202320107
Market Cap
169948791970.827
Dividend Yield
2.7036104114189756%
Rev. per Employee
239780
More quote details and news »
(PEP), also broke out to new highs this week through resistance from a three-month range (see Chart 3). We can argue that this pattern was also an inverse “continuation” head-and-shoulders defined by twin lows surrounding a lower trough in between.
Interpretation is similar to a regular head-and-shoulders pattern, in which a move through the neckline—the resistance line, at $118.10, in this case—points to a move in that direction. For Pepsi, that suggests a first upside target near $123. (Pepsi traded at $119.12 Wednesday afternoon.)
Coca-Cola
KO 0.021649707728945658%
Coca-Cola Co.
U.S.: NYSE
USD46.2
0.01
0.021649707728945658%
/Date(1502917245751-0500)/
Volume (Delayed 15m)
:
7728069
AFTER HOURS
USD46.2
%
Volume (Delayed 15m)
:
347933
P/E Ratio
48.125
Market Cap
197014395104.41
Dividend Yield
3.2034632034632033%
Rev. per Employee
384148
More quote details and news »
(KO) has a similar pattern, although not one as pretty.
Dr Pepper Snapple Group
DPS 0.5110362074589541%
Dr Pepper Snapple Group Inc.
U.S.: NYSE
USD92.44
0.47
0.5110362074589541%
/Date(1502917320998-0500)/
Volume (Delayed 15m)
:
585607
AFTER HOURS
USD92.44
%
Volume (Delayed 15m)
:
9993
P/E Ratio
22.20354046069224
Market Cap
16713249033.1726
Dividend Yield
2.5097360450021635%
Rev. per Employee
328250
More quote details and news »
(DPS) also shows some potential, although it is still reeling from its April revenue miss and subsequent big selloff. However, money seems to be flowing back in according to technical indicators such as on-valance volume.
Spirits makers also show some power with new highs in
Constellation Brands
STZ -0.06542526421741318%
Constellation Brands Inc. Cl A
U.S.: NYSE
USD198.57
-0.13
-0.06542526421741318%
/Date(1502917354511-0500)/
Volume (Delayed 15m)
:
856720
AFTER HOURS
USD198.57
%
Volume (Delayed 15m)
:
9697
P/E Ratio
27.728205772694903
Market Cap
38808805441.0121
Dividend Yield
1.0474895502845345%
Rev. per Employee
849874
More quote details and news »
(STZ) and
Diageo
DEO 2.0249695493300854%
Diageo PLC ADR
U.S.: NYSE
USD134.02
2.66
2.0249695493300854%
/Date(1502917322089-0500)/
Volume (Delayed 15m)
:
628893
AFTER HOURS
USD134.1063
0.0862999999999943
0.06439337412326518%
Volume (Delayed 15m)
:
2412
P/E Ratio
24.94137789853724
Market Cap
82078781972.0248
Dividend Yield
3.0326801969855244%
Rev. per Employee
510554
More quote details and news »
(DEO). Nothing on the charts suggests imminent danger here.
Boston Beer
SAM 0.10046885465505694%
Boston Beer Co. Cl A
U.S.: NYSE
USD149.45
0.15
0.10046885465505694%
/Date(1502917323503-0500)/
Volume (Delayed 15m)
:
114692
AFTER HOURS
USD149.45
%
Volume (Delayed 15m)
:
2693
P/E Ratio
21.258890469416784
Market Cap
1794041789.19105
Dividend Yield
N/A
Rev. per Employee
586331
More quote details and news »
(SAM) may have reversed its long decline after jumping on excellent second-quarter earnings released in late July. The chart shows a possible upside break of a 2½-year bearish trend (see Chart 4).
Finally, keep an eye on drug retailer and health-management company
CVS Health
CVS 0.1769687776513715%
CVS Health Corp.
U.S.: NYSE
USD79.25
0.14
0.1769687776513715%
/Date(1502917248183-0500)/
Volume (Delayed 15m)
:
3509149
AFTER HOURS
USD79.25
%
Volume (Delayed 15m)
:
64691
P/E Ratio
15.818363273453095
Market Cap
80420457963.6017
Dividend Yield
2.5236593059936907%
Rev. per Employee
723140
More quote details and news »
(CVS). This stock has been heading in an ever-tightening range since falling off a cliff on Election Day. A breakout from that range could signal a significant move.
Getting Technical Mailbag: Send your questions on technical analysis to us at online.editors@barrons.com. We’ll cover as many as we can, but please remember that we cannot give investment advice.
Michael Kahn, a longtime columnist for Barrons.com, comments on technical analysis at www.twitter.com/mnkahn. A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.
Comments? E-mail us at online.editors@barrons.com
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