Key Takeaways
- Thursday’s decline leaves prices largely unchanged from this past Monday’s close, three days ago. Thus, downtrends have not been arguably erased, even over the near-term
- Sector performance shows Consumer Staples starting to meaningfully strengthen
- 10-Year Treasury yields are pushing back above 2.80%, and Tech is underperforming
The mild stabilization in recent days still hasn’t led to much bounce in this Market tape, which is disappointing given the normal bullish seasonality that kicks in ahead of the holiday weekend. Prices lie largely unchanged from Monday’s close from 4/11/22. Thus, lots of churning, but no real rally. Overall, it’s still right to view the market as being positioned to try to bounce into next week. However, any break under 4375, just 20 points lower, and “All Bets are Off” as trends and wave structure would turn much more bearish. At present, sector performance remains Defensive and the push higher in rates is coinciding with broad Technology underperformance. As has been discussed, the technical problems with weak Breadth, and momentum along with poor Technology performance are definite Q2 hurdles for big market gains particularly when Cycle composites show bearish pullbacks into May/June before a market low. At present, we’ll just have to monitor if sentiment can truly turn bearish enough to show evidence of capitulation which largely has not happened, despite lots of disgruntlement. Next week should be telling.
Sector Performance continues to show a very defensive Tape
Unfortunately, despite many expecting April to be a positive month, the performance in SPX leading groups like Technology and Financials has just been downright disappointing.
Consumer Staples have moved into 1st place for top performance in the rolling 1 month period, higher by more than 10% based on SPDR Sector ETF performance, while Technology, Industrials and Financials are lagging badly.
This isn’t the kind of sector rotation that happens ahead of big moves higher in the market. If the groups which represent the most within SPX cannot seem to perform well and relative charts vs the SPX continue to point downward, its essential to respect that, as opposed to thinking the market’s wrong. If and when that changes, then it will be right to revisit these sectors.
At present, after 14 weeks of 2022 trading, only three groups are positive for the year: Energy up a whopping +44%, Utilities, higher by +6.6%, and Consumer Staples, up +2.57%. I anticipate these groups hold up at least through the 1st half of this year, and on any signs of Energy turning down, that likely will provide buying opportunities given my intermediate-term bullish view.
Consumer Staples continues to look attractive after just breaking out to new all-time highs
The Staples group is one that underperformed early on this year, and Food stocks lagging post the Russian invasion of Ukraine made this sector lag despite markets being quite volatile.
Staples are now the best performing S&P SPDR Select ETF over the last month, and XLP has just broken back out to new all-time highs.
Additionally, this group looks very close to making a relative breakout which would happen if XLP vs SPX moved back over prior 2018 lows. This would allow outperformance to continue, which directly lines up with my 1H 2022 view.
My Top picks from the Consumer Staples sector currently are WMT 1.40% , HRL 0.37% , SYY -0.49% , CHD 0.15% , and KO 0.33% while several others are straddling all-time highs and also look quite appealing. These are: COST 1.09% , STZ -0.18% , GIS 0.80% and PEP 0.43% . Others which already broke out awhile back and have skyrocketed higher in parabolic fashion, like HSY 0.13% , and ADM -2.26% are certainly bullish technical names, but just overbought and not as actionable near-term given how extended they’ve become. See the absolute and relative charts of Staples vs SPX below.
Microsoft has just broken down relatively speaking vs SPX
Relatively speaking, Microsoft has just dropped under a meaningful level of support on relative charts to SPX. The neckline of this pattern goes back to last Summer and its recent violation is thought to be negative for the next 2-3 months in MSFT before this can bottom out.
Overall, AAPL has largely avoided showing the kind of weakness that other top Technology stocks like FB and NFLX have shown lately. While the so-called “FAANG” group remains under pressure on an absolute basis (per NY FANG Index composite-Bloomberg) and the relative chart of FANG vs SPX, this should be buyable if/when the February SPX lows are broken over the next month. I’m expecting a 2H rebound from Large-Cap Technology, so it will pay to watch carefully for evidence of exhaustion and/or sentiment extremes in some of these names as they get oversold in the weeks/months to come.
See the relative chart of MSFT 0.24% vs SPX below which has just broken down relatively and is expected to underperform in the near-term as a result.
