November's Finest

Market leaders and laggards for the month of November

After an excruciating October, US equities continue to level out. The S&P 500 posted a monthly return of 1.79%, closing a hair above its 200 day moving average. With the 200 DMA flattening out and the 50 DMA pointing downward, it appears a crossover is imminent. It’s important to note this is not the type of moving average crossover we see in a bull market.

The story of the month is how Crude Oil prices are impacting Global Markets. We’ve seen a massive decline in Crude Oil, shedding an additional -22.50% in November to close at $50.72 per barrel. The weekly chart can be seen below.

With the threat of an Oil bear market weighing on US equities, defensive stocks have become the topic of conversation among investors. The below is a heat map of sorts, displaying November returns for varying sector ETFs. The leaders for the month of November include Healthcare (XLV), Real Estate (XLRE), Utilities (XLU), Financials (XLF), Industrials (XLI), and Consumer Staples (XLP).

Despite investor uncertainty on direction of the US stock market. There are plenty of individual stocks that continue to outperform the broader market. We’ve seen a clear rotation into value and dividend paying securities. The below graph is YTD returns of Growth, Value and High Dividend S&P 500 ETFs.

Growth Stocks are the YTD leader showing a 9.15% return. Followed by High Dividend at 3.92% and Value at 0.47%. The Growth segment include the beloved FAANG stocks, which up until October, remained the clear market leader. What’s displayed itself over the past 2 months, is value/defensive names making big moves to the upside. I’d like to start with a look at an individual name within the Utilities sector.

Nextera Energy (NEE) is Select SPDR Utilities ETF (XLU) #1 holding. Nextera has a 2.5x dividend yield, and given its defensive nature, the technicals present a unique buying opportunity. Utilities is a non-cyclical sector, meaning it is needed during all phases of the business cycle; gaining exposure to utilities in the current market climate may continue to bid well over the next 6-12 months. Nextera Energy’s weekly chart can be seen below.

  • Tested a newly formed support zone, and closed the week above the prior weeks open.

  • In a clear uptrend, trading above the 9ema on a weekly time frame.

  • Slight bearish RSI divergence, putting a strong emphasis on the S/R zone at $175 per share.

It’s clear that Nextera Energy is an out-performer within the Utilities sector, but how has it fared against the overall market? Below is NEE vs. S&P 500 ETF weekly chart.

Nextera Energy has performed extremely well compared to the broader market. The evidence currently points toward NEE continuing to outperform. I believe the recent surge in Natural Gas prices aided Nextera, but do not believe it holds a complete dependency on any 1 energy market. I remain bullish on the stock and neutral on the overall Utilities sector.

I’d like to now take a look at the Healthcare sector - leading the month of November as well as YTD % return, XLV remains an absolute monster. With a large percentage of its holding trading at all time highs, only 14 out of 65 total holdings are in the red YTD. Below is the XLV weekly chart.

  • The fund is attempting to breach all time highs, with a weekly Advance/Decline Bar Ratio of 0.80 - Not the most ideal number to support true sector breadth, but an indicator to keep eyes on none the less.

  • Trading above the 50MA on a weekly time line

  • Bearish RSI Divergence ***

I remain bullish on the sector and am continuing to dive into Pharmaceuticals, HC Equipment, and Bio-tech to gain a deeper understanding of the overall market.

Lastly, I’d like to look at a few individual stocks within the Consumer Staples sector.

Walgreens Boots Alliance (WBA) displayed a large amount of bullish momentum in recent weeks. WBA closed above the 82.61% Fibonacci Retracement level and although it is oversold on the weekly chart (see below) it remains a viable option for any dividend paying portfolio. It’s current dividend yield is 2.1x.

Proctor & Gamble (PG) saw a record October while the broader market lagged heavily behind. With a 3.1x dividend yield and price nearing all time highs, I believe money will continue to flow into this company. The below is a monthly chart of PG.

  • Room to run on the RSI

  • Trading above the 50MA on a monthly time frame.

  • If resistance is not broken through, we may see a retracement down to the lower support trend line - leaving $74 per share downside.

  • Ascending triangle chart pattern is bullish in nature

I could continue on with Value/Defensive names closing in or already passing all time highs (McDonald’s, Starbucks, Verizon, Pepsi. etc.) The point is, money is noticeable flowing into these names and preparing for more uncertainty ahead. I did not touch on technology in this month’s newsletter, because in my opinion nothing has changed (yet). Tech remains a laggard displaying lower lows and lower highs - something we do not see within a bullish sector.