Defensive Posture:
The staples group is off to a strong first half of 2019, up nearly 14% YTD, the seventh best performing major S&P sector thus far. On a 3 month look back period they are the best actor having advanced 6.3%. The market is rewarding very safe groups, and last week was no exception. Only the utilities, healthcare and real estate gained ground last week, while the communication services, technology and discretionary all FELL more than 2%. Below is the ratio chart of the XLP over the S&P 500, and it clearly shows this defensive space is benefitting from investors deploying capital to this area. Is it giving more risk on groups a breather for another leg higher, or more of an ominous sign?
Constellation Buzzkill?
A couple of the alcohol majors have been on different paths. Below is the ratio chart comparing two of the titans DEO and STZ (BUD is now 23% off most recent 52 week highs). DEO has been best of breed for sometime, know trading just 1% off most recent all time highs, while STZ is 15% off its most recent peak. DEO is higher 16% over the last one year period, while STZ is LOWER by 8% over the same timeframe. Consider as well that DEO carries a much superior dividend yield of 3.5% compared to STZ’s 1.5%. The last 3 weeks have CLOSED amazingly taut for DEO, within just .22 of each other, near all time highs. Expect a powerful move.
Examples:
Recently we discussed how TWNK has been acting surprisingly well given that its products are not the most nutritious types that consumers seem to crave. Another stock proving this theory correct is the chart of MDLZ below and how it was profiled in our 5/8 Consumer Staples Report. Like many of its peers it trades in a very taut fashion, a hallmark bullish trait, and this week each of the 5 sessions CLOSED within just .25 of each other. To be fair the suggested 50.50 pivot was never hit, but it is a good illustration of how well the group is acting and if it were to be hit in the near future would be the first time coming into contact with the line since the bull flag breakout, often a great entry point.