we have a market that's moving higher - but nobody is willing to push it beyond this point.
Right now, nobody is selling, and nobody is buying.
And it's all because we are in a market that is lacking confidence
Volume across the board can be described as anemic at best.
When I looked at the current volume of all of the major indexes, a lot of the sectors were seeing volume that was hardly a third of what you'd expect to see.
Typically, for the first month of each quarter, all of the market's issues can be chalked up to earnings disrupting the market.
But, earnings have done much better than any of us could have expected given the headlines.
This is telling me that the market isn't having an earnings issue right now but rather a confidence issue.
Knowing that a market that lacks confidence can be dangerous if not approached properly, you'll need to figure out the best place to park some cash to keep it growing at a consistent pace.
We've been pretty clear about the fact that the Old School Safety Trades haven't been popular with traders of late.
One reason - why buy a stock that pays a 3% dividend only to get a negative real return when the shares lose 5% year to date when you can just stuff your money in the bank?
But, the data is showing that we're seeing a money migration back into the old-school Safety Trades.
Volume on the Utilities Select Sector SPDR Fund (XLU), Consumer Staples Select Sector SPDR Fund (XLP), SPDR Gold Shares (GLD), and other safety trades have been on the rise, as investors may be hunkering down for a long summer of trading.
This is at the same time that the Invesco QQQ Trust Series 1 (QQQ), SPDR S&P 500 ETF Trust (SPY), IShares Russell 2000 ETF (IWM) and other more market-sensitive ETFs are seeing a decline in volume.
But there's more.
While volume is good, the breadth and momentum of that volume is better.
We can get a good read of momentum in the ETF landscape by looking at the percentage of companies within each ETF trading above their 50-day moving average:
Utilities are a given. People have been keeping the lights on and AC blowing since at least the 50s, so it's no surprise these companies are doing well - especially as more people work from home.
But the sector I want to tear apart for you is the SPDR Consumer Staples (XLP).
This is a sector where you can find the stocks that are in it by going into any room in your house and opening up a cabinet. I guarantee you'll find something that is produced by a company in the consumer staple sector.
This is your Procter & Gamble Co (PG), your Colgate-Palmolive Co (CL), PepsiCo Inc. (PEP), and Coca-Cola Co (KO).
For the XLP, here is your breakdown sorted:
The three that I'm watching right now are highlighted in green.
Let's start with the first on the list, Mondelez International Inc. (MDLZ):
The stock is coming off a rally from the $65 level and starting to consolidate at $70.
This is a classic-style technical setup. The 200-day moving average (MA20) is giving support to the company, the 50-day moving average (MA50) is showing a bullish trend, and it's above its 200-day moving average (MA200).
You can't find a better technical picture - maybe if those Bollinger Bands start to contract. And that consolidation tells me they are right on the brink of that happening as well!
What amplifies this trade, as well as the next two, is the dividend yield that goes along with it.
Right now, MDLZ is paying out 2.9% on its dividend, but year-to-date it's also returned 6% on the share price.
Then you have your only option for a good chocolate bar, Hershey Company (HSY):
This company's Bollinger Bands are wide open right now, but just like with MDLZ, the stock is consolidating - this time at $260. Meanwhile, the moving averages are painting the exact same picture.
Now, this will be a bit pricey to play the long side of, but if you stretch it out to the June or July expiration, it becomes much more manageable.
And don't forget that takes you into the summer months when they will have another revenue stream open up with their amusement park. Oh, by the way, we are seeing the Producer Price Index show a bit of easing, which will lead to a larger profit margin on each sale they make.
All of the fundamentals of this company pair with the technicals almost as good as, well, peanut butter pairs with chocolate.
Look for a target of $270 for this position.
And the last company on my list is going to be Church & Dwight (CHD):
This one has gone through all of the dirty laundry, but in this disconnected market, it's positioned to come out of the wash squeaky clean.
This company only makes up 1% of the sector, but it's up 12% on the year.
At first glance, the technicals don't look outstanding on this stock, but it's a bit of a facade.
You are still seeing the MA50 moving higher, giving a point of support, but the real special sauce here is the MA200 which is starting to turn higher after a stretch of a downward trend.
The trend has shifted drastically. For most of last year, the company wasn't doing that great.
If you want in on this company, look for it to move back to its highs of $105 as people continue to enter the defensive trade.
Of course, if you want to avoid the headline risk of individual stocks, you can just stick with the XLP. If you take that route, look to trade it to a target of $80.
Regardless of which route you choose, I'm going to be tracking the money flowing into the safe havens of the market each morning on The Long and Short of It.
When the rest of the market runs dry, the safe havens will be a target-rich environment that will keep our trades going as the market finally hits its capitulation stage.
The post Where to Park Your Cash in a Less Than Confident Market appeared first on Penny Hawk.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.