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5 charts showing how defensive investors are right now

Lawrence Lewitinn
·Lawrence Lewitinn

The charts are showing that investors are positioning themselves defensively in the face of a volatile market, according to one technical analyst.

Source: Katie Stockton, BTIG
Source: Katie Stockton, BTIG

The S&P 500 (^GSPC) may have had a slight rebound on Tuesday, but the first two weeks were the worst start of the year for the index. Katie Stockton, chief technical strategist at BTIG, sees several signs in the charts that investors are looking to play it safe in these turbulent times.

Stockton sees the S&P 500 as coming close to support around the 1870 level. That price was roughly support in August and September 2015.

“If those lows are subsequently taken out as well, the S&P 500 would be suffering yet another breakdown in a bearish development,” she said. “Because of this bearishness, we’ve also seen a lot of stocks break support on their charts. That shows weak market breadth or weak market participation.”

Source: Katie Stockton, BTIG
Source: Katie Stockton, BTIG

It’s already too late for small-caps stocks, according to Stockton. The Russell 2000 (^RUT) index broke below its September low of 1078.63 and closed at 1007.72 on Friday.

“That breakdown effectively reflects a loss of relative strength, a loss of momentum, and a loss of market breadth,” said Stockton. “All of these are bearish developments that suggest the first quarter will be a tough quarter for most investors.”

Source: Katie Stockton, BTIG
Source: Katie Stockton, BTIG

In the wake of such moves, investors are now being more defensive, she said. Stockton charted the ETF tracking the consumer staples sector (trading under the ticker symbol XLP) versus S&P 500, which is done by dividing the price of the ETF by that of the index. A move higher indicates the XLP is outperforming the S&P 500.

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“That supports additional defensive posturing,” she said. “People are seeking safe havens in what is proving to be a pretty rough tape for the market this year.”

Source: Katie Stockton, BTIG
Source: Katie Stockton, BTIG

Within the consumer staples sector, some stocks haven’t suffered as much as the rest of the market during the 2016 selloff. One example is Clorox (CLX), which is down less than 1% while the S&P 500 is off by around 8% year-to-date as of Tuesday morning.

Clorox “has really managed to maintain its long-term uptrend and it's managed to maintain relative strength and momentum,” said Stockton. “The 200-day moving average can be considered initial support on the chart. It doesn't look like it's bound for a test anytime soon as Clorox continues to outperform the broader market.”

Source: Katie Stockton, BTIG
Source: Katie Stockton, BTIG

Campbell Soup (CPB) is another consumer staple stock that has outperformed the market, though it too has had a 1% loss for 2016. Shares in the soup-maker are up 15% in the past 12 months.

Stockton sees it maintaining a long-term uptrend and expects Campbell Soup to approach $60 per share, a few cents higher than its record highs set in the late 1990s.

“These are the kind of stocks that you want to seek out in a market that is losing market breadth and has seen relative underperformance in the higher beta areas of the marketplace,” said Stockton.

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