Three Top Consumer Staples Names to favor in a tough market
Technical Strategy Video:
Key Takeaways
- Trends & momentum remain negative as US Equity indices broke down but tried to stabilize ahead of FOMC. Under 4606 would lead to 4450, or 4360 before Santa rally
- Technology dropped sharply for a second straight day, as breadth finished around 2/1 negative, while TY Yields and US Dollar were largely range-bound ahead of FOMC
- GIS, TSN and KO are stocks to favor as outperformers within Consumer Staples
Tuesday’s decline violated lows of the last four days in SPX, joining NASDAQ in consolidating the recent bounce from early December. Technology took the lead lower and is one of the worst performing sectors in the last week, joining Consumer Discretionary and Energy. In the short run, 4610-2 held on a closing basis for SPX. However, the damage on this gap down caused the wave structure to take on a more bearish near-term formation. Bottom line, bounces into/post FOMC should likely fail in my view, with key area to sell strength near 4640-70. Any decline back under 4606 is quite negative technically, leading down to 4360-4410 ahead of a low right before Christmas. Unfortunately, given negative breadth, momentum, wave structure, DeMark exhaustion, it’s difficult “getting long” just yet, despite the bullish seasonality present in most Decembers. 2021 is shaping up to be closer to 2018 than a normal December.
Overall, to have confidence in markets bottoming, we’ll need to make a strong push back up above SPX-4672 on heavy volume and broad participation. Until then, the near-term structure favors the Bears a bit longer. Importantly, any move under 4606 would make this most recent pullback likely weaken to a Fibonacci projection of the first move down from mid-November. As discussed, the most likely range is down at 4360-4410. While this seems severe for December, it would be probable on any break of Tuesday’s 12/14 lows.
German DAX index looks similar to most broader Equal-weighted indices globally, as most began to flatten out this past Spring.
While most are concentrating on US indices rather closely, it’s interesting but not surprising that most European and Asian indices have taken the technical shape of the US Value Line Geometric Average which flattened out starting this past Spring. As the DAX shows below, the gap down into early December, similar to many indices, caused some technical damage in momentum, and we saw the bounce merely fill the gap before turning back lower. Strong and important support lies near 14800 and is thought to hold on further weakness into late next week.
Three top Consumer Staples stocks to consider technically:
Consumer Staples has outperformed sharply of late, turning in the best returns of any of the major S&P SPDR ETFs on a one-week basis, with returns of +3.04% while eight sectors remain lower over the last week. While this newfound strength should prove short-lived if Equity indices can stabilize and bounce into end of year, this strength looks particularly impressive technically in many names, and deserves to be highlighted as an area which I feel can work well in a tough market environment.
General Mills (GIS 0.63% - $65.94) is one of the better chart patterns within Staples to consider from a risk/reward basis following its Breakout above consolidation going back since Fall 2020. This flat base breakout above two former peaks to new multi-quarter new high territory makes this quite attractive technically, and should drive this stock to the low $70’s to challenge 2016 All-time highs from over five years ago.
Coca-Cola (KO 0.60% -$57.80) is another attractive name within Cons. Staples that has finally begun to show some strength to close the gap between itself and Pepsi-Co. Tuesday’s ability to push higher to multi-month closing highs on a daily close is quite constructive technically. Not much resistance lies between current levels & former peaks hit last February just above $60, and this looks like an attractive technical risk/reward to consider during this unusual, volatile December.
Finally, Tyson Foods (TSN-$85.75) has just managed to exceed the Triangle pattern which has contained prices over the last month. Similar to KO above, TSN making a technically significant push higher to break consolidation resistance during a rough time for Technology bodes well for TSN to likely strengthen further in the weeks ahead. While many are questioning whether to buy dips ahead of FOMC, these three Consumer Staples stocks are promising technically and look good to consider.
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