Investors wouldn’t be blamed for sizing up the first losing week in three for the S&P 500 and decide to start the weekend early. And stock futures are just barely positive. Who can blame them after the mixed bag of data this week that has reigniting worries in some corners about whether the Fed could push the economy into a recession with its rate-hike plans?
That brings us to our call of the day from TheoTrade’s chief market technician, Professor Jeff Bierman, who sees a bubble ahead for consumer staples, which he calls a “‘safe haven’ rotation sector that is overbought and overpriced.” Bierman doesn’t hold back with his warning. “We’re heading into a recession and consumer staples are priced like growth stocks when they’re actually value stocks. The Marubozo signals that we are in for a much deeper correction in consumer staples than we’ve experienced in the past couple of days,” he tells clients (more on Marubozo below). The group of stocks he’s talking about include Walmart
Procter & Gamble
Zeroing in on a couple, he points out how Campbell Soup trades at a price/earnings ratio of 20 times, yet the return on assets, a proxy for the growth rate, is at just 7.5 times. “This stock could be cut in half and it’s still too expensive,” Bierman said, adding that it’s the same thing for Coca-Cola, which is trading at trading at 24 times earnings with a return on assets of just 10. “Every sector of the S&P needs to come to a single-digit multiple before it signals a market bottom. Semiconductors, oil, and retail (in certain parts) are there. Consumer staples — not even close,” Bierman told clients. Bierman is looking at one major signal for signs of this bubble bursting, that is the “biggest Marubozo in the Consumer Staples Select Sector SPDR ETF
we’ve seen since back in September.” What’s a Marubozo? Bierman explains that via candlestick charts, which are used by technical traders and monitor the open and close of a stock on a single day. A Marubozo — from the Japanese word, close cropped — is a long-bodied candlestick that has no shadows — regarded as a strong signal of conviction by sellers or buyers depending on whether its pointed up or down. Here’s the chart showing that candle headed down:
“The greatest opportunity to short on Wall Street, according to risk/reward, is consumer staples. This is the beginning of the breakdown in consumer staples, for the long term,” he added. Note that Bierman nailed three big moves f …