Consumer Staples Show Some Shine

Major indexes testing their 50-day moving averages to the upside was somewhat expected.

The Dow and S&P 500 reversed and closed slightly in the red after touching these key averages.  The Nasdaq, which came just shy of its 50-day average, was hardly changed on the day.

Volume was average across the indexes as traders continued to evaluate what last week’s correction means to their strategies.

We’re likely to stay Bears until the 50-day averages are conquered.

Beginning Thursday, we’re looking for at least one of the major indexes to power at least 2% higher, or so, on heavy volume to give us an indication of Follow Through.

Any rally without this confirmation of institutional sponsorship will be suspect. The reason we wait a few days from Thursday’s low is to give shorts time to cover so as not to confuse it with real buying.

While uncertainty of strength in the broader market has us mostly on the sidelines, we’re seeing some promising action from select individual names.

Breakouts from 52-week bases for top-earnings-growers Hasbro (HAS) and Maidenform Brands (MFB) gives us a shade of confidence that others on our list will follow.

Going into Wednesday’s trading, Affymax’s (AFFY) volume boost suggests it could be next. Akamai (AKAM) is also close.

This tells us that breakout routines from top names may not be completely out of fashion.

These breakouts are “high-risk” without a confirmation in trend from the broader market. Though bad markets do in fact have their successful breakouts, the odds of them producing at least 20% price advances in the following months will decrease when the broader trend is down.

Larger, slower stocks in, or near, New High territory include Consumer Staple names like Sara Lee (SLE), Campbell Soup (CPB), Pepsico (PEP) and Altria Group (MO).

Consumer Staple’s ability to climb in the next couple weeks will be watched closely for an indication of how well it could pull everything else higher. Further confidence may come from S&P 100 names, like McDonalds (MCD) and Wells Fargo (WFC), which don’t appear to have topped.

Strength from these widely considered “safer” investments shows some defensive playing from large funds. It also indicates less willingness from funds to bid  aggressive names higher. We can only say that for this week, so far.

We expect to have a better understanding of the nature of this market by the end of the week. Stay tuned.