The moves forecasted by the COT signals make them very adaptable to commodity based ETFs, writes And...
3 Defensive ETFs with Strong Technicals
08/30/2011 7:00 am EST
Some of the defensive sectors look like they will continue to show strength, says Michael Thompson, who travels the country showing investors how to screen for top-performing stocks. He discusses the technicals in three SPDR ETFs, and shares some ideas about large-cap consumer staples that are holding up well.
Kate Stalter: Today, we are speaking with Michael Thompson, and he may be familiar to many in the MoneyShow audience. He is the director of business and client relations at Worden Brothers, and I know that you do speak frequently at the MoneyShow events. Great to be talking to you today, Michael.
Michael Thompson: Hey, thanks Kate. It is great to talk to you, as well.
Kate Stalter: What is your take on the current market conditions? I know that you are frequently coaching people on investing, and helping people to find ideas. What are you seeing in this current market, and what do you believe individual investors really need to know about these days?
Michael Thompson: Looking at an S&P chart right now, it’s trying real hard to convince me that it wants to move up. You’ve got a series of ascending bottoms over the last week or so, or week-and-a-half. It is trying to move up. Volume still stayed decent, but as I have looked at the sectors, it is very defensive.
I look at the sectors from July 7, which was really the last peak that we had in the market. Money was flowing dramatically into utilities, into staples, and into healthcare. It was way outperforming the market in all these.
In fact, the last little bounce we had in the S&P ended on August 15. Those three sectors are actually up since the 15th; the market is down 2.5%.
Utilities, staples, and healthcare are all up. Utilities are up almost a full percentage point, three-fourths of a percentage point. So they are still significantly outperforming the market.
The fact that they are green while the market is red indicates that there is still money moving into the defensive sectors. So while I would love to believe the chart, and it seems like there is a nice little ascending triangle starting to form, maybe trying to form some kind of a bottom to bounce out of, the bottom line is: Money, as far as sectors go, is still going into the defensive sectors.
There is still not a confidence in the market that would allow people to start investing, say, in financials, tech or energy again.
Kate Stalter: Within some of these pockets of strength that you are seeing in some of the defensive areas, anything in particular that investors might want to take a look at, as far as their research goes?
Michael Thompson: The way I do this, is with the SPDRs Select Sectors. There are ten different ETFs, and they are a really great way to analyze the market, because it breaks the market down into its ten major sectors with tradable vehicles.
So obviously, SPDR Utilities (XLU), SPDR Consumer Staples (XLP), and SPDR Health Care (XLV) would be vehicles if someone wanted to somewhat internally diversify. Those ETFs themselves would be tradable. But within those component lists there are actually some pretty interesting stocks.
One that I thought was very interesting is Sempra Energy (SRE), which, of course, is in the utilities sector. It has been trading on substantial volume comparatively, has had some fairly good days and is definitely outperforming the market right now.
The technicals are beginning to set up really nicely. Worden’s MoneyStream and TSV indicators, which are kind of looking at where money is flowing, both look very positive, starting to really pick up.
So that is a stock that has set up a very nice “V” bottom here off the July 8 low, and significantly, did not pull back to the extent the market has. It’s in that sector that is doing rather well, utilities, and it is a good-looking pattern right now.
DTE Energy (DTE) would be another one that folks might want to look at, if they are looking at utilities. It has also done really well against the market, and its technicals actually are setting up even more positively.
Our TSV indicator, Time Segmented Volume, has actually crossed the zero line, which is a signal that money is actually starting to positively move into this stock. So again, as money is running to defensive sectors still, these are a couple of energy stocks that look pretty good.|pagebreak|
Kate Stalter: Anything out there that investors should just be sure they really stay away from? I know people often try to find a bargain, and sometimes that is not necessarily the best idea. Anything they should really avoid right now?
Michael Thompson: Well, as I said, looking at the utilities and the staples, things like Costco (COST), Wal-Mart (WMT). Even McDonald’s (MCD) is a great looking stock right now, flirting with and sitting at its all-time high the last few days. Those are some really good places for people to go, because those kinds of things tend to do well when the economy is weak.
Right now, financials, energy, and telecom are really performing poorly. Telecom has really been the worst performing industry since the July 7 highs, but anything in financials and anything in energy right now is struggling.
After we had that little bounce that ended August 15, we have been kind of in a downturn since then. Even though we have had some up days, we are trending down. The S&P is down 2.5%.
SPDR Energy (XLE), which is the energy ETF, is down almost 5%. So anything in energy or anything in financials is going to be weak right now. I would definitely stay away from it.
Now, if financials begin to pick up—which they are going to need to, to convince me—if the S&P can get past 1,200 and financials begin to lead, then I am going to believe that we are in for at least a decent bounce, if not a new rally.
Right now, that is not happening. Financials and energy both are down at the bottom. Tech is almost as bad as financials. Tech is down 3.1% since August 15, and financials are down 3.11%. So they are both down about the same.
So while money is moving into the defensive sectors, those sectors are sectors I would avoid unless I were to trying to find things to play with the market’s downturn, if I was trying to short. Or I might play the inverse ETFs on financials or energy right now.
But I tend to want to go where the money is going. Right now, money is still moving toward the defensive sectors.
Kate Stalter: Which is something that you often see in a market downturn.
Michael Thompson: Absolutely, it is very normal activity. But you would think, now that we have bounced off those lows on August 8, that that money would start to move out and maybe start flirting with some of the other sectors. But right now, since the 8th, the only positive sectors as far as price movement are utilities, staples, and health care, which are the defensive sectors.
Kate Stalter: Right. Right. Well thanks very much Michael. We really appreciate your ideas and your insights today. This has been great.
Michael Thompson: Well, I have enjoyed it and I hope folks will stay with this market. I think we are in for some good times, but it is going to be a little bumpy for awhile.
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