Trading With Technicals

This week I will just look at some simple charts and not have a ton of commentary to go along with them.  I have stayed consistent with a theme that the economies around the world are slowing and investments focused in “boring” dividend payers and just plain defensive sectors make sense right now.  I have also refrained from getting overly bearish as I feel the moment there is any decent weakness in the markets, the ECB and/or the Fed will inject more liquidity, driving markets higher.  This continues to make shorting the market difficult, so investing defensively while the world economies are clearly slowing makes the best sense to me.  You have the inflation protection of equities along with a dividend yield that is superior to treasuries; while the dividends are growing every year.

Looking at the charts below, I feel it looks clear that the economy is slowing.  The markets are discounting weakness and, as investors, we should not ignore them.  First a look at some economically sensitive stocks.

Now, lets look at some stocks that are not tied to the economy or the business cycle but rather produce things most of us need.

Finally, Bond yields have been discounting slower growth for a while now, outside of the short-time that a hint of no new QE was coming. (which faked me out)

The above collection of charts paints a clear picture of a slowing economy without question.  Many of the stocks that are tied to the economy are well off their highs, while the defensive names, that are not tied to the economy, are all at or near their highs.  This does not mean the market can not get another liquidity infused rally, set off by the world’s central banks.  What is does mean though, is that the market is discounting a slowing economy.

Strategy for the week: My strategy remains the same as it has for months now.  Stay patient and look to the “boring” stocks for safety.  The correction that has been under way for a few months now has, thus far, been a sideways affair and may end up just being that.  It is difficult to tell if it will be completed as a sideways correction or turn into something deeper.  I think that all depends on the central banks willingness to inject liquidity.  If the correction does turn into a deeper slide, I am confident the central banks will act.  So stay defensive and stay patient.  This leaves you exposed to the equity market if the correction unexpectedly comes to an end, while giving you some protection from a deeper correction as these stocks should hold up a bit better in that environment.

All charts courtesy of http://stockcharts.com