Discover Top Posts Tagged with #$rhs

Can This Consumer Staples Staple Save The Sector?

The stock of Procter and Gamble is presently testing its multi-decade trendline support.

Despite the post-January stock market correction, it has been constructive to see that outside of utilities and real estate, scarcely any other sectors have broken longer-term bull market support of any significance. We noted this in a post a few weeks ago that the consumer staples sector, as represented by the Consumer Staples SPDR ETF (XLP), was testing its Up trendline stemming from its 2009 lows. After holding the trendline again, temporarily, the support has since fallen by the wayside with XLP breaking down. While definitely concerning, one key stock in the sector may have a chance to help stave off any further material weakness, at least in the near-term.

As our Chart Of The Day points out, the stock of Procter and Gamble (PG) is testing a major Up trendline stemming all the way back to its lows in 2000. This is a potentially important opportunity for the consumer staples sector in general as PG constitutes the largest weight in the XLP, at 11%.

As mentioned, if PG can hold this trendline, it may help the sector stem the tide of recent selling. That said, obviously the damage has been done on a sector basis with the XLP breaking down. Therefore, the relief may only be temporary. But it may at least be a decent trading opportunity -- or a decent opportunity to ditch one's exposure to the sector.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.

#$PG #$XLP #$RHS

Bull Market Staple Being Tested Again

An Up trendline has supported a popular consumer staples ETF without fail on several occasions since the 2009 low; it is under attack again at the moment.

We can glean a lot about the state of the overall stock market during a correction and its reaction. One interesting observation from the current correction comes from an inspection of the market segments and sectors that are breaking down vis-a-vis their longer-term uptrends. Or perhaps I should more accurately say not breaking down.

As far as sectors go, obviously energy has had its challenges in recent years. Outside of that sector, however, probably the only one that we can say has really broken down is the utility sector. Given that minimal longer-term damage, we can reasonably suggest that, despite the recent rout, the longer-term bull market remains substantially intact. Obviously that characterization would change should we start seeing more sectors break down. As it happens, one steady bull market climber is seeing its uptrend being tested at the moment.

We mentioned in October that the Consumer Staples SPDR ETF (ticker, XLP) was testing an Up trendline that had been in place since the 2011 low and that had supported the ETF the several times that it was tested over the past half dozen years. Well, as it turns out, one could have extended the trendline back further and it would have intersected right at the low in March 2009. Thus, the trendline also held in 2011, and it held again in October. So, we are talking about a pretty well established trendline, and an important one in the context of the post-2009 bull market.

We bring it up again because XLP is testing the trendline presently once again.

This trendline may not be life or death for the broad stock market. It may not even be life or death for the XLP, though a decisive break certainly would not be a positive for the ETF. But a break would be one of the first subtle red flags in a market that has done very little wrong, as far as the longer-term uptrend is concerned, over the past 2 years.

It may not be flashy, but it is a development that bears watching.

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#$XLP #$RHS

Bull Market Staple Getting Tested

A popular Consumer Staples fund is testing its bull market uptrend.

There have naturally been a lot of big winners among the various sectors during this bull market in stocks. And the gains have accrued in a variety of ways. Some of the biggest gains have been in high-profile, “flashy” sectors — but they’ve also required a lot of Maalox along the way. Other sectors have seen more moderate but steady gains. The consumer staples sector would certainly fall under the latter category.

As measured by the popular Consumer Staples SPDR ETF, ticker, XLP, the sector has tripled since the 2009 low, even before factoring in a solid dividend yield. Perhaps the best characteristic of the bull market in consumer staples, though, has been its steady, low-volatility path. At just about -12%, XLP has experienced the smallest post-2009 maximum drawdown of any of the sectors. This has provided for a relatively smooth ride for consumer staples investors.

Sure, there have been a few hiccups along the way. However, over the past half dozen years, each time the XLP experienced a bit of adversity, it was saved by a rising trendline stemming from its late 2011 lows. The ETF is experiencing one of those hiccups now — and testing the trendline once again near the 53.50 level.

With the stock market rally hitting on just about all cylinders at the moment, consumer staples is one of the few areas that has not participated. Based on our approach of investing in the relative strength in the market, that would necessarily disqualify XLP. However, taking another view, it is also one of the few places in the market that is not substantially extended currently. If the trendline can hold again (potential Fibonacci support also lies just below ~52.78), this may be one of the few favorable risk/reward opportunities in the immediate-term.

If you’re interested in the “all-access” version of our charts and research, we invite you to check out our new site, The Lyons Share. TLS is currently running a 30th anniversary 1987 Crash Commemoration SALE, offering a discount of 22.6% -- the equivalent of the Dow's 1-day drop on October 19, 1987. The SALE ends October 22 so considering the discounted cost and a potentially treacherous market climate forthcoming, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

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#$XLP #$RHS #$PG #$VDC

Enjoy A Cup (And Handle?) Of Coke

The stock of Coca-Cola is breaking out to all-time highs -- and out of a potentially bullish long-term pattern.

Readers may be aware of our view that U.S. stocks have likely entered a cyclical bear market. We can certainly understand why most observers don’t agree with that stance. A glance at the S&P 500 would suggest that that view is premature, at best. However, a broader market view lends a different perspective. For example, a look at the Value Line Geometric Composite, an unweighted average of about 1700 stocks, reveals that the median stock has already dropped more than 25% from its 2015 highs. Anyway, semantics aside, one common misconception about bear markets is that everything goes down during the entire duration. That is not the case as today’s Chart Of The Day indicates.

It is only during the teeth of a bear market that we typically witness the “nowhere-to-hide” dynamic. This is usually manifested in a capitulatory phase at the culmination of the bear market when investors give up and essentially all stocks decline. If this is a bear market, we don’t appear to be anywhere near that phase as evidenced by the continued effectiveness of relative strength. This approach, which we espouse, entails concentrating one’s portfolio in the strongest-performing segments of the market. And there continue to be pockets of identifiable strength in the market.

One area of relative strength has been the consumer staples sector, which is back at all-time highs following its early-2016 pullback. One subset of that sector that has been strong is the beverage industry. And one beverage stock, in particular, showing considerable potential still is one you may have heard of: Coca-Cola. In fact, just yesterday, Coke broke out to an all-time high -- and out of a potentially long-term bullish pattern that it’s been in for 18 years.

Market technicians may refer to the pattern in the above chart as a “cup-&-handle”. This is historically a pattern with very bullish implications. It involves 2 parts, generally showing the following characteristics:

The Cup: This phase includes an initial high on the left side of a chart (e.g., the 1998 high in Coke around $45), followed by a relatively long, often-rounded retrenchment before a return (e.g., late-2014) to the initial high.

The Handle: This phase involves a shorter, shallower dip in the stock and subsequent recovery to the prior highs (e.g., the 2014-2016 period in Coke).

The bullish theory is predicated on the idea that after taking a long time for a stock to return to its initial high during the “cup” phase, the “handle” phase is much briefer and shallower. This theoretically indicates an increased eagerness on the part of investors to buy the stock since they did not allow it to pull back nearly as long or as deep as occurred in the cup phase. Regardless of the theory, the chart pattern has often been effective in forecasting an eventual breakout and advance above the former highs.

How high does the pattern suggest prices will go upon a breakout? As we’ve mentioned before, we are not big fans of setting targets. We prefer to deal with price should it reach a certain level as opposed to expecting or relying on price to hit said level. That said, there are rules of thumb pertaining to how far price may go upon a breakout above the highs (i.e., top of the cup). Such targets vary between 50%-100% of the top-bottom range of the cup.

In the case of Coca-Cola’s stock, that would (hypothetically) imply a move to anywhere from $58 to $71. That would be a gain of between 30%-60% from here. I think investors would take that...even over a cup of Coke.

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More from Dana Lyons, JLFMI and My401kPro.

The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.

#$KO #$PEP #$XLP #$RHS #$VDC

Another Relative Strength Staple Scores An All-Time High

RHS, an equal-weight consumer staples ETF, continues its recent show of relative strength by hitting a new all-time high.

After a year like 2015 that was loaded with hollow, unconfirmed new highs in the stock market, followed up by the beginning of 2016 that saw the worst start in stock market history, finding intriguing “Chart Of The Day” candidates can seem like an arduous task. Let’s face it, as chartists, we were spoiled last year with an abundance of “potential all-time bad” and in January with “realized all-time bad”. Thus, after a bounce off the lows and into middle ground, things can appear a bit mundane these days. That’s when we go back to the basics.

Whether it’s good, old-school chart analysis like yesterday’s post on the Value Line Composite or highlighting a fund displaying attractive current relative strength, like Monday’s post on a dividend ETF, these “back to the basics” charts aren’t as flashy as some charts over the past 12 months. Nonetheless, they are every bit as practical and useful as any. And that, ultimately, is the objective behind our sharing of content. If the stuff we posted had no relevance or utility in making investment decisions, we wouldn’t bother doing this (not to mention, you most likely would not be reading any of it anyway.)

Today’s Chart Of The Day is just another good example of the virtues of the relative strength investment selection approach that we espouse. Once again, by relative strength, we are simply referring to a philosophy whereby we try to concentrate our investments in the areas of the market that are performing well. That may sound obvious, but it actually runs contrary to the way that a lot of investment dollars are managed, e.g., mean-reversion, value plays, catching falling knives, etc. Of course, designing a system to identify and profit from relative strength before the strength fades is the million-dollar challenge.

We do have a proprietary relative strength investment selection model that we employ which works for us over an intermediate-term time frame (i.e., at least several months). Others may certainly have a different time frame and certainly different inputs -- to each their own. However, our system works for us. And one of the funds the model has had on its radar for well over a year now is the Rydex S&P Equal-Weight Consumer Staples ETF (ticker RHS). And the fund is still squarely on the radar as it struck a new all-time high today.

In Monday’s post on the ETF, FDL, we wrote that relative strength can be demonstrated in both good markets (by gaining more) as well as bad markets (by losing less). RHS has been able to fulfill both duties as it has continued to consistently score new highs over the past few years and has been more resilient than most funds during the corrections of the past 6 months.

For example, like FDL, RHS held well above its August lows while the market tested its in January. Likewise, in mid-February, while the January lows were being tested across most areas of the market, RHS was able to stay well above its January low. That’s what you want to see from potential future relative strength candidates when emerging from a low. Those areas of the market that return to their former highs first following a selloff are often leaders in the subsequent rally.

Speaking of subsequent rally, will we get a durable one here? We covered those prospects in yesterday’s post concluding that, while there were technical challenges on the charts nearby, there was also compelling evidence to expect a further rally. We do not know what will transpire here, but we will say that as long as something is still displaying positive relative strength, it is a good omen for the immediate-term stock market prospects. It is really only during the teeth of a bear market -- when there is no place to hide, everything is getting smashed and correlations go to 1.0 -- that relative strength loses any and all utility.

The fact that there are investment options like RHS that continue to head to new highs suggests that we are not yet at the gate of that “nowhere-to-hide” phase of a bear market.

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More from Dana Lyons, JLFMI and My401kPro.

#$RHS #$VDC #$XLP #$FDL #Relative strength #$SPY #$IWM

Another Rung In The Bull Market Yanked Out

The relative strength of the consumer discretionary sector versus consumer staples had been a positive for stocks -- not anymore.

Some folks like to accuse us of being perma-bears, or at least one-sided when presenting market insights. Nothing could be further from the truth. Our only mission is to make and protect our clients’ assets. Therefore, our focus will go wherever the data leads us. It just so happens that the preponderance of data over the past 8 months, in our view, has been tilted to the bearish, or “risk” side of the equation.

That said, we have been willing suppliers of bullish indicators when we’ve come across them. Since May, these have primarily been found in shorter time-frame data points. One longer-term positive that has persisted, however, is the relative ratio between the consumer discretionary sector versus the consumer staples sector.

The story goes that, when discretionary stocks are leading, it is perhaps an indication of a healthy consumer in the economy, and/or that the investor community is comfortable taking on risk. Conversely, when the defensive staples sector is leading the way, it connotes the impression that investors, and possibly consumers, are assuming a “risk-off” posture.

Whether that is sound reasoning or not, prices do historically support the theory. When stocks are in the midst of a bull market, the discretionary:staples ratio tends to slope up. On the other hand, during risk-off periods (e.g., 2000, 2007-2008), the ratio has clearly pointed lower.

Over the past year, the ratio, as measured by the Consumer Discretionary SPDR ETF (XLY) versus the Consumer Staples SPDR (XLP) has exhibited mostly positive behavior. This has, in our view, been a positive consideration for stocks over that period. We pointed out such bullish developments in posts in May and December.

Although, in the December post, we did point out a very relevant asterisk regarding the ratio. The XLY was climbing on the backs of only a few mega-cap names (e.g., Amazon). Indeed, using the equal-weighted versions of the two sectors, we found discretionary stocks at a relative 4-year low. That said, as recently as November, the XLY:XLP ratio was breaking out to all-time highs. On the margin, we considered that a bullish factor for stocks. Not anymore.

As the chart below shows, the November breakout in the XLY:XLP ratio was short-lived. It has since dropped to an 8-month low in forming an apparent false breakout.

So is this a death knell for the bull market? Not necessarily. There are obviously numerous other factors that will weigh on the market’s direction at least as heavy as this one. However, for a bull market with a dwindling list of positives on which to hang its horns, this additional negative development is most unwelcomed indeed.

There are precious few support rungs left to lose before this market finally goes Kerplunk! (for you millennials, that’s the game pictured in the photo at the top of the post).

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More from Dana Lyons, JLFMI and My401kPro.

#$XLP #$XLY #$RCD #$RHS #$AMZN #$DIS #$PCLN #$HD

Strength In Discretionary Vs. Staples Stocks Is A Positive...If It Were True

The apparent strength in consumer discretionary stocks relative to consumer staples is a function of a few mega-cap names -- the action in the broad discretionary sector is actually much worse.

Outside of a few brief spurts, we have spent much of the last 7 months harping on the quality of the rallies in the stock market -- or even the quality of the non-rallies. As we have documented extensively, there has been a steady deterioration in the number of stocks exhibiting strength as well as the desirability of the areas that are continuing to hold up. It is generally a good thing for the broader market to see the cyclicals and lower quality names acting well. This suggests that participants, as a whole, are comfortable with the market environment and “risk-on”, so to speak, is at the fore. For the most part, this has not been the case since last spring.

One exception, however, has seemingly been the strength of the consumer discretionary sector, especially relative to consumer staples. When the riskier discretionary stocks do relatively better than the defensive staples, it has generally been a positive for the stock market. Yours truly even noted the positive implications of the action in the discretionary stocks versus staples stocks via a “relative ratio” back in June. That ratio, based on the popular Consumer Discretionary Sector SPDR ETF (XLY) and the Consumer Staples SPDR (XLP) broke out to an all-time high in June, in XLY’s favor. The indication was that discretionary stocks had never been stronger relative to staples.

While the XLY:XLP ratio did not extend itself much further following the breakout, it has been able to maintain the breakout levels ever since, indicating the strength in discretionary stocks had not waned. We took the implications of this development at face value, i.e., as a positive for stocks.

As time wore on, however, we noticed the deterioration in the rest of the cyclical space and thought...hmmm. Why was this sector, which typically deteriorates within a market environment that is weakening internally, actually exhibiting strength? Well, as you have probably noticed, we have spent quite a bit of focus on “equally-weighted” indexes and funds over the past several months. By viewing a market segment based on the equally-weighted performance of all constituents, we get a better grasp of the true strength of the segment. Conversely, when looking at a market cap-weighted segment, its performance may be unduly influenced by its very largest components, positively or negatively.

This is the fly in the ointment in the strong relative performance of discretionary stocks versus staples stocks. Looking at the highest weighted stocks in the XLY, we see a who’s who of the top equity performers this year including Amazon (10% weighting), McDonald’s (4.5%), Starbucks (4%), Nike (4%), etc. Collectively, the top 10 holdings make up 40% of the XLY. At a 10% weighting, Amazon alone takes a lot of the credit for XLY’s performance this year considering its 100%+ performance in 2015.

However, looking below the top 10 surface, we see that things are not quite what they seem in the “robust” discretionary sector. We can do this by looking at the Rydex Equal-Weight Consumer Discretionary ETF (RCD). Again, the RCD weights all of its discretionary components equally so the fund’s performance is a good gauge of the depth of strength in the sector. And based on that, things are not so hot there. Whereas the XLY traded at an all-time high just a few weeks ago, the RCD is well below its highs set in July. And as we have highlighted a few times in these pages, comparatively speaking, the equal-weight:cap-weight ratio (i.e., RCD:XLY) is at a 6-year low.

And compared to the Rydex Equal-Weight Consumer Staples ETF (RHS), the ratio just dropped to a 4-year low. That’s a far cry from the cap-weighted XLY:XLP ratio trading near all-time highs -- and perhaps a shock to those hanging their hats on the “out-performing discretionary stocks” thesis

We really don’t like to make excuses or poke holes when an indicator happens to be flashing a particular signal. We prefer to take all signals at face value. However, in this case, there is ample reason, in our view, to be skeptical of the supposed relative out-performance of discretionary stocks vs. consumer staples. The out-performance is essentially concentrated in just the upper echelon of the sector (which, by the way, is probably a solid signal in its own right). However, as judged by the equal-weighted versions, discretionary stocks are badly lagging behind the consumer staples.

Often times, things are not quite what they appear to be in the markets. Such is the case here. What seems like a positive for both the consumer discretionary sector and the risk-taking inclination of market participants in general, actually turns out to be a sector and market negative when taking a broader look. And it is likely enough evidence for us to dismiss the supposed positive message being sent by discretionary stocks.

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More from Dana Lyons, JLFMI and My401kPro.

#$RCD #$RHS #$XLP #$XLY #$AMZN #$MCD #$NKE #$SBUX #$HD

Strength In Discretionary Vs. Staples Stocks Is A Positive...If It Were True

The apparent strength in consumer discretionary stocks relative to consumer staples is a function of a few mega-cap names -- the action in the broad discretionary sector is actually much worse.

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More from Dana Lyons, JLFMI and My401kPro.

#$RCD #$RHS #$XLP #$XLY #$AMZN #$MCD #$NKE #$SBUX #$HD

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