Defensive Groups Lead The Bounce

JC Parets
March 30, 2020

If you're one of these people who thinks the lows for stocks are in, which sectors would you expect to be leading the way higher? The big important groups that fell the hardest, and therefore should bounce the most? Probably.

Well, what if I told you that it's been the opposite.

The leaders off the lows are Utilities, Consumer Staples, Healthcare and REITs:

Click on Charts to Zoom in

Is this the type of leadership that instills confidence that we've seen the worst of it?

Look how the S&P500, Dow Jones Industrial Average and Nasdaq all retraced 38.2% of their entire declines:

These large-cap indexes have always been the leaders. If you recall, it was the Small-cap Russell 2000, Dow Transportation Index and Regional Banks that failed to make new highs in February, like these 3 above did.

Look how Small-caps have not reached their 38.2% retracement.

Same with the Dow Jones Transportation Average. Weak Bounce:

And Regional Banks have been the worst. If you recall, this group peaked in December, well before any virus. The internals of this market were already breaking down. This index was one of the best tells. I think it still is:

So far, this is a classic dead-cat bounce. There is no other way to put it.

I'm waiting to see evidence to the contrary, any evidence....

At this point, I see Treasury Bonds going out at new all-time highs, the most defensive stocks leading the bounce, and the indexes that gave us the best "heads up" that things were about to collapse, are giving us the same signal now.

You guys know me, I call it like I see it. And from what I can tell, this is the sheer definition of a dead-cat bounce:

This photo I updated is a classic visual for what we're currently seeing.

We're looking for breadth improvement. Until we see that, then we have to err on this being the higher probability outcome and new lows are coming for all the major US stock indexes and sectors.

Tell me what you think

JC

 

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