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.
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.
