DEFENSIVE STOCKS CONTINUE TO SHOW LEADERHIP -- KIMBERLY CLARK LEADS STAPLES HIGHER -- UTILITIES AND REITS CONTINUE TO GAIN GROUND -- KIMCO REALTY JUMPS 3% -- AUTOS HELP PULL CONSUMER DISCRETIONARY SPDR LOWER -- GENERAL MOTORS BREAKS 200-DAY LINE
CONSUMER STAPLES ARE HOLDING UP ... Last Wednesday's message showed that money was flowing toward defensive stocks, which meant that investors were ending the old year in a more cautious mood. That mood is continuing into the new year. With the stock market on the defensive during the first two trading days of 2016, defensive sectors continue to show relative strength. That includes consumer staples, healthcare, utilities, and REITs. Chart 1 shows the Consumer Staples SPDR (XLP) trading higher today after finding support at its 50-day average. Its relative strength ratio (top of chart) has hit a new high. Stocks leading the XLP gains are tobacco, household products, and food. Top gainers are Reynolds American (RAI), Kimberly Clark (KMB), WalMart (WMT), Altria Group (MO), and Hormel Foods (HRL). Chart 2 shows Kimberly Clark (KMB) climbing 2% and nearing a record high. Its relative strength ratio (top of chart) is already there.
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Chart 1
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Chart 2
UTILITIES AND REITS ARE ALSO GAINING... Defensive stocks that pay dividends are also attracting new money -- like utilities and REITS. Chart 3 shows the Utilities Sector SPDR (XLU) gaining ground today after bouncing off its moving average lines. Its relative strength line (top of chart) has risen to the highest level since October. Chart 4 shows the streetTRACKS Dow Jones REIT Fund (RWR) rising as well. Its relative strength line is already at a ten-month high. Kimco Realty (KIM) is one of the day's REIT leaders. Chart 5 shows Kimco gaining more than 3% today after bouncing off its moving average lines. Its relative strength line is at the the highest level in nearly a year. Dividend income appears to be one of the dominant themes in the new year. Some element of defense may also be at play with global stocks entering the new year under pressure.
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Chart 3
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Chart 4
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Chart 5
CONSUMER CYCLICALS WEAKEN ... While money has been flowing into defensive stocks, it's been rotating out of economically-sensitive cyclical stocks. Chart 6 shows the Consumer Discretionary SPDR (XLY) trading below its 200-day line. Its relative strength line has fallen to a four-month low. Autos are one of the day's weakest groups. Chart 7 shows General Motors (GM) falling below its 200-day average to a three-month low. Its relative strength line has also turned down. Auto weakness isn't a sign of confidence.
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Chart 6
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Chart 7
STOCK INDEXES TURN DOWN ... Stocks are off to a bad start for the new year. Most of the damage took place on Monday when a 7% loss in Shanghai help push global stocks sharply lower. [Chinese shares saw a modest bounce today]. That pushed U.S. stock indexes into a test of underlying support levels. Chart 8 shows the Dow Industrials falling below its December low, but still testing a potential support line drawn over its mid-September peak. Chart 9 shows the S&P 500 testing its December low near 2000. The Nasdaq market suffered the worst damage. Chart 10 shows the Nasdaq Composite Index suffering a downside gap (in heavier trading) which pushed it below its 200-day average. It will have to regain that gap and more to restore its uptrend. The Nasdaq/SPX ratio (top of chart) fell to two-month low. So far, no serious chart damage has been done to the major stock indexes. But they're clearly on the defensive. Recent sector rotation also shows investors playing defense.
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Chart 8
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Chart 9
