Trend Check with Tushar Chande

Constellation Brands (STZ): Strongest Stock in the Weakest Sector (Within the S&P 500)


It is quite unusual when a major S&P sector is consolidating (or not trending strongly) and yet has stocks within it that are moving up nicely.  It is worth a look whether one is a counter-trend/value buyer or a momentum player.  I begin by using the Chande Trend Meter (CTM) to rank the major sectors within the S&P 500 itself (see Chart 1) and comparing their performance to other key indexes.  The CTM for the Dow Industrials, SPX and XLK, the Technology Select sector SPDR, are above 90, which means they are trending strongly.  Three other sectors are between 80 and 90 on the CTM, which means the market breadth is quite broad.  Bringing up the rear of this train is the XLP, the Consumer Staples Sector SPDR ETF.  The XLP is generally viewed as a defensive play, and as the market trends strongly, the XLP is out of favor at the moment, which is attractive to value players.


Chart 1: Key indexes and major S&P 500 sectors ranked by their Chande Trend Meter or absolute trend strength.  The Consumer Staples SPDR (XLP) ETF is the very weakest at the moment, offering opportunities for value/counter-trend players.


Three Searches for the Strongest Stocks in XLP SPDR Universe

I placed the stocks which comprise the XLP ETF into a chart list, and then ranked those stocks by the SCTR ranks (see Chart 2) and by the CTM (see Chart 3).  I then broadened the search to remove the XLP chart list and include the Consumer Staples sector in the search space, thus using more stocks than just those in the S&P 500 Consumer Staples sector.

Constellation Brands (STZ), which is a global producer and purveyor of beer, wine and spirits, ranked #1 in Chart 2, #3 in Chart 3, both of which just use the stocks in the XLP ETF.  A broader search of all Consumer Staples stocks (even those not in the S&P 500) finds STZ at the #4 spot using SCTR rankings (see Chart 4).  So it is fair to say that the STZ is bucking the weak trends pervading the group as a whole, where the average SCTR value is only 28 or so.


Chart 2: A ranking of the stocks in the XLP SPDR by SCTR values shows the STZ at the top with the best relative trend strength.  The average SCTR value for all stocks in the XLP ETF is only 28 approximately.


Chart 3:  This table shows XLP ETF stocks ranked by Chande Trend Meter.  Only Walmart (WMT) and Coca Cola (KO) are trending more strongly than STZ, which is #3 on this absolute trend strength list.


Chart 4: We explore the broader Consumer Staples sector (beyond the stocks in just the XLP ETF) and even on this list, STZ ranks #4.

STZ Has Trended Well

A long-term weekly chart of STZ shows it has trended very well. A brief correction late last year and early this year was on the only time in the past 5 or so years where the prices even came down to their 50-week average.   The CTM has stayed above 80 for most of the chart showing the strong trend in this stock.

Chart 5: A weekly chart of STZ with CTM in the lower panel shows that the CTM was in the green region for most of the past 5 years or so. (A live version is here.)


CREE Has Key Breakout

Another stock that caught my eye this week was CREE, which just notched a major breakout. Note how the CTM and SCTR both are near or above 90, and the sharp jump in absolute and relative trend strength is confirming the breakout.


Chart 6: The dashed blue lines on the right edge suggest this is a major breakout from a long basing period. (A live chart is here.)


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Tushar Chande
About the author: , PhD, MBA, is the inventor behind an impressive collection of technical indicators, including the Aroon and Stochastic RSI. He has written several books, holds both a PhD in Engineering and an MBA in Finance, and has over two decades of experience trading the financial markets. Follow Tushar in this blog as he highlights his new "Trend Meter" indicator and shares his analysis of current market conditions. Learn More
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