Unfashionably Late
We were not very excited about last week's S&P's breakout to a new high because it took place going into a holiday weekend and with quarter-end window dressing.
With the indexes breaking out to all-time highs, it would seem that many names should be setting up on the long side. But we aren't seeing that. We see many charts that look like this:
JNJ
KR
K
GIS
The theme? Consumer staples. These are DEFENSIVE ISSUES. Typically when defensive, "people still gotta eat" companies start to lead.
If the market sees bad times ahead the big "long only, have to stay invested money" looks for a safe port. It may not be looking for returns so much as a safe port. (So we wouldn't think about shorting these stocks anytime soon.)
We do not chase stocks. The extended stocks above are not "buys" by our method. We like stocks that are in uptrends but are pulling off highs (POH). We see little of that now. These two are the best looking POH stocks on our list currently.
GOOG
C
''Compare JNJ and KRO to GOOG and C. I call it a tale of two tapes. JNJ, KRO, K and GIS have been rallying and the entry points are not low risk. Extended may get more extended, but from the perspective of investing, it is late to buy extended stocks. While these issues may track sideways, new money should look for parties that are just beginning.
From a technical perspective, the charts for GOOG and C look better than the charts for JNJ, KRO, K and GIS.
Tape painting: money seems to gravitate to names that are able to keep the drive alive on the surface. Look at the DOW's eeking into a new high last Thursday. IBM was up 2.40 points, which accounted for about 20 points of the Dow's 52 point move — almost half the index's move came from one heavily weighted stock.
GOOG makes up 8% of NDX 100 index – it's a good stock to run up to keep the NDX 100 higher. It's in a clearly defined uptrend, pulling back off highs to trend channel support. It also has no topping pattern in place.
And finally…
Perhaps Uncle Ben and his wild rice gang have got our backs, and the stock market will never go down again. Nevertheless, the extended stocks are still extended. Furthermore, seasonality factors are close to turning more negative. November through April is the best period to own stocks – it's almost over.
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