GLOBAL STOCKS SLIDE AS MONEY MOVES INTO TREASURIES -- STAPLES AND UTILITIES SHOW RELATIVE STRENGTH -- CLOROX AND CVS ARE STAPLE LEADERS -- PFIZER HAS A STRONG DAY -- BANK INDEX PULLS BACK FROM 200-DAY AVERAGE
SHORT-TERM STOCK PULLBACK DEEPENS... Global stocks are continuing the pullback that started last week. Chart 1 shows the S&P 500 heading down toward a test of its early April low and/or its moving average lines. The 14-day RSI line (top of chart) has slipped below the 50 line which suggests a deeper pullback. MACD lines (below chart) are slipping as well. The day's biggest losses are coming from economically-sensitive groups like energy, financials, materials, industrials, technology, and discretionary stocks. Defensive groups like staples, utilities, and healthcare are holding up a bit better. A drop in bond yields is also pushing money into the safety of Treasury bonds.
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Chart 1
FALLING BOND YIELDS BOOST PRICES... Chart 2 shows the 10-Year Treasury Yield falling back below it 50-day average and in position to test the rising trendline drawn under its February/April lows. Chart 3 shows the 20+Year Treasury Bond iShares (TLT) trading back over its 50-day line after holding support along its March. Money normally flows into Treasuries when stocks are under pressure. The rally in bonds is also helping support utilities and staples.
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Chart 2
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Chart 3
STAPLES AND UTILITIES SHOW RELATIVE STRENGTH ... As normally happens when stocks weaken and bond prices bounce, investors favor these two defensive groups. Both are marginally lower today, but are holding up better than other sectors. In other words, they're showing relative strength. Chart plots a *ratio* of the Utilities SPDR (XLU) divided by the S&P 500. After peaking in February, the XLU/SPX ratio is bouncing again. Chart 4 shows the ratio trading back above its 50-day average. Chart 5 shows a similar look on the Consumer Staples (XLP) /S&P 500 ratio. Falling bond yields also increase the appeal of both dividend-paying groups. The two ratios show that investors are turning more defensive as we enter the seasonally weak month of May.
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Chart 4
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Chart 5
CLOROX AND CVS LEAD STAPLES ... The next two stocks are the day's biggest percentage gainers in the consumer staples space. Chart 6 shows Clorox (CLX) jumping more than 4% today to reach a new record high. Its relative strength ratio (top of chart) has turned up as well. Chart 7 shows CVS Health Corp (CVS) gaining 2% and very close to breaking through a resistance line (neckline) drawn over its October/early April highs. Its relative strength line (top of chart) is turning up as well.
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Chart 6
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Chart 7
PFIZER REACHES SIX-MONTH HIGH... Healthcare stocks are also holding up reasonably well today. The standpoint performer in that group is Pfizer. Chart 8 shows Pfizer (PFE) jumping to the highest level in six months. The stock broke through its 200 day average a month ago and appears to be resuming its uptrend. The PFE/SPX ratio (top of chart) is resuming its uptrend as well.
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Chart 8
UBS HURTS BANKS ... Banks stocks are having a rough day. Chart 9 shows the KBW Bank Index ($BKX) falling more than 2% today and turning back from its 200-day moving average. That's a setback for the bank group and the rest of the market. The big Swiss bank UBS Group reported a 64% drop in earnings in Europe this morning before losing 8% of its value. That rattled bank stocks there and here. Falling bond yields are also hurting the value of bank shares.
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Chart 9
ALL COUNTRY WORLD INDEX BACKS OFF FROM RESISTANCE... There may be another chart reason why global stocks are experiencing some selling. The daily bars in Chart 10 show the MSCI All Country World Index iShares (ACWI) pulling back from chart resistance at its early November peak (near 58). That's a normal spot to expect some profit-taking to appear. [The ACWI includes stocks in global developed and emerging markets, including the U.S.] A pullback to its moving average lines seems likely. Apparently, the entire world has heard the "sell in May" mantra.
