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The Standard & Poor’s 500 index (SPX) rebounded from its rising 50-dma this week, after a selloff the previous week. This was an almost textbook perfect picture of how markets react in a bull market. “What’s next?” is the question most clients are asking the past few days. Despite the whip-saw volatility over the past four weeks, the technical backdrop has not changed materially. Weekly indicators, tracking 1-2 quarter shifts, continue to incrementally turn down from overbought levels that developed in early 1Q, and are unlikely to bottom until well into 2Q. Consequently, I continue to expect markets to remain in a choppy trading range over the coming 2-4 months which I’m expecting will present better opportunities to redeploy capital. For fully invested investors with flexibility to be tactical, I continue to recommend rotating capital from well advanced leaders to more defensive groups and stocks. Source: FS Insight, Bloomberg This week’s chart is of Constellation Brands (STZ) which appears to be in the early stages of bottoming at long-term support around its 200-week simple moving average (SMA). In contrast to the high momentum, high P/E technology leaders that are now well above their 200-day moving averages, STZ has spent the bulk of 2019 consolidating in a range between $175 to $210. Over the past week, as volatility in the SPX increased, STZ is just beginning to rally above its 200-dma. I recommend accumulating STZ near current levels as part of a tactical move to diversify portfolio exposure heading into and through 2Q. I discussed STZ, along with General Dynamics (GD) and Molson Coors (TAP), on CNBC’s Fast Money on Thursday, February 6th, which you can view here. In addition to the technical reasons I highlight, these stocks also screen positively as companies as improving on estimate revision model (ERM) run by Fundstrat’s new head of global portfolio strategy, Brian Rauscher.

Expect More Choppy Trading; STZ, GD, TAP Look Attractive
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Illustrations by Karl Wimer.