foxex: Needs and Wants

Monday, October 7, 2019

Needs and Wants

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Monday, October 07, 2019

1. Stocks Hesitate as Investors Realign their Needs and Wants

2. Utility Sector Maintains its Relative Strength

3. Disney Share Prices Bouncing off Support

Market Moves

The S&P 500 index hesitated its upward march from the end of last week, closing a fraction of one percent lower. Meanwhile the Nasdaq 100 and Russel 2000 indexes closed mildly higher (compared to their opening price) for the day. This outcome seems to portend the possibility that stocks will eventually fluctuate higher in the days to come, but not without worried investors creating drama along the way.

One interesting signal of how investors are re-prioritizing their choices nowadays comes from observing a comparison chart of two particular market sectors and the exchange traded funds that track them. These funds are triple-leveraged and based on the consumer discretionary sector (WANT) and the consumer staples sector (NEED) respectively. The chart below shows that, as of late, investors are placing what they need above what they want. This conservative approach is consistent with a nervous market climate.

Utility Sector Maintains its Relative Strength

The roller-coaster action shown by the S&P 500 (SPX) index demonstrates that investors are worried about where stocks will end up next. This likely explains why shares of utility stocks have risen apace year to date. Worried investors tend to prefer dividend-paying stocks such as those found in the utility sector. The sector is tracked by exchange traded funds such as the Utilities Select Sector SPDR® ETF (XLU). The chart below compares that ETF with several of the stocks that make up the holdings within the fund.

Utility Rally Could Last Into 2020 Election

Disney Stock Nears Major Buying Signal

Disney Share Prices Bouncing off Support

The price action for shares of Disney (DIS) have been in a sideways range for several months, but right now they are near their lowest point in that range. Like many other bellwether stocks, Disney's shares may be poised to rise from support. This assumes that many issues troubling investors, the trade talks, the impeachment effort, the budget deficit, oil prices and so forth, will generally find acceptable resolutions before long. That's a pretty hefty assumption.

The Bottom Line

U.S. stock indexes hesitated in their rebound action as volatility index also held at elevated levels and commodities dropped lower. Utility stocks fell but not enough to dent the significant uptrend they've had all year so far. Indications are that investors may resume buying some stocks, especially those near support such as shares of Disney. If not, then the downward trend will resume its strong decline.

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