ENERGY AND MATERIALS WEAKEN AGAIN AS COMMODITIES SEE RENEWED SELLING -- FREEPORT MCMORGAN COPPER & GOLD FOLLOWS COPPER LOWER -- ADD DR. PEPPER AND CVS TO DEFENSIVE WINNERS
COMMODITIES CONTINUE TO WEAKEN... Commodities are coming under renewed selling pressure after the oversold bounce of the last two days. The following charts also show that this week's rebound came on much lighter volume that last week's heavy selling. That's a strong indication that the downside correction in commodities probably has more to go. The first chart shows the United States Oil Fund (USO) still trading well below its 50-day moving average and chart support starting at 42. Chart 2 shows Silver iShares meeting resistance at its 50-day line. Copper looks much worse. Chart 3 shows the iPath Copper ETF (JJC) trading below its 200-day moving average. As I suggested last week, copper's breakdown may be the most significant of all because of that commodity's role as an indicator of global economic strength. Copper's breakdown also explains why Freeport McMoran Copper & Gold is the biggest loser in a week basic materials group.
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Chart 1
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Chart 2
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Chart 3
FREEPORT MCMORAN THREATENS 200-DAY LINE... With commodities under renewed selling pressure, energy and basic materials have resumed their spring role as two of the market's weakest sectors. The Materials SPDR (XLB) is down -2.5% today and in danger of falling below its 50-day average. Its relative strength ratio shows the XLB losing its leadership role at the start of April. The day's biggest XLB percentage loser is Freeport McMoran Copper & Gold (FCX) which gets most of its profits from copper. Chart 5 shows FCX falling more than 6% today and in danger of falling below its 200-day line. Its relative strength line peaked at the start of the year.
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Chart 4
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Chart 5
MONEY LEAVING COMMODITIES MOVES TO DEFENSE... I've pointed out in previous messages that money moving out of commodity assets starting in early April has been moving
into defensive sectors like consumer staples and healthcare. Chart 6 shows the relative strength of those four sectors versus the S&P 500 (flat black line). Since the start of April, energy (blue line) and materials (red line) have become two of the market's weakest sectors, while healthcare (green line) and staples (pink line) have become two of the strongest (along with utilities). Those three defensive groups are today's sector leaders, while energy and materials are again the weakest.
Chart 6
DR. PEPPER BREAKS OUT -- CVS IS CLOSE ... With the market under some pressure today, consumer staples are the day's strongest sector. In past messages, I've shown several staple stocks achieving bullish breakouts. Here's another one. Chart 7 shows Dr. Pepper Snapple Group (DPS) breaking through last summer's high to reach a new record. As has been the case with several other recent staple leaders, its relative strength line only started rising this spring.
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Chart 7
CVS MAY BE NEXT ... The weekly bars in Chart 8 show CVS/Caremark in the process of breaking through its late-2009/early 2010 peaks. A close over 38 (which appears likely) would put this staple/healthcare leader at the highest level since 2008. The stock's relative strength line (below chart) has just broken a resistance line extending back to the summer of 2009. That's what we've been seeing in most of these defensive stocks. And, as I've been warning, recent rotations out of economically-sensitive sectors (like energy and materials) and into defensive sectors like consumer staples, healthcare, and utilities is usually a sign of a market in need of a correction or consolidation.
