Under the surface, a surge in defensive stocks

Trouble under the surface of the Nasdaq 100

Does a surge in utility stocks, a traditionally defensive sector, signal too much pessimism and therefore provide a bullish market message for the S&P 500?

Dean conducted a study to assess the outlook for the S&P 500 after a composite breadth indicator for the utility sector surges above 70%. When he applied a 9-day net change to the utility sector composite, participation over the trailing 9 sessions has surged to the second-highest level in history.

Participation among Utilities stocks is surging

This signal has triggered 33 other times over the past 68 years. After the others, future returns were strong.

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The Grayscale Bitcoin Trust (GBTC) is on track for its 5th consecutive weekly decline. That's the longest weekly losing stretch in its history.

Staples are enjoying a surge

While breadth in more speculative areas is struggling, it most certainly isn't among more defensive names. 

Heading into this week, there was a massive and sudden shift in short-term trends in Staples. Within a little over a week, fewer than 5% of stocks in the sector were trading above their 10-day moving averages, and then every single one of them was.

The short-term reversals in many stocks have helped push the long-term McClellan Summation Index for Staples above +500 for the first time in more than 6 months. In recent years, a move above +500 was the kick-off before significant, sustained gains in the sector.

The McClellan Summation for Consumer Staples is rising

Looking back more than 30 years, the first reading above +500 in several months preceded consistent gains for the sector. Other indicators are mostly supportive, including correlations among Staples stocks, and corporate insider trading activity.

The post titled Under the surface, a surge in defensive stocks was originally published as on SentimenTrader.com on 2021-12-15.

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