Trend Check with Tushar Chande

Flavor of the Month: McCormick and Co. (MKC)

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McCormick’s (MKC), the spice and flavoring maker, just broke out to 52-week highs.  It is a good example of fundamental analysts colliding with technical analysis: six out of eight equity analysts rate MKC a hold, with one on a sell signal.   Earnings have surprised mildly to the upside, and management is upbeat.   The uncertainty in the market has put a bid under defensive stocks:  utilities have become the strongest sector in the S&P 500, and even though most of the top ranked stocks in the S&P 500 universe are utilities or REITs , MKC is the lone food stock in the defensive rotation.

 

Chart 1: McCormick & Co.,  MKC, broke out to new highs after consecutive mild earnings surprises as part of a rotation into defensive stocks.


 

Utilities are the Strongest Sector

In Chart 2 I show the daily Chande Trend Meter (CTM) ranks of the major sectors in the S&P 500.  Note how the major indexes (DIA, SPY) are in the yellow or neutral zone, with no clear trend. Utilities and REITs are near the top (on the left).  In Chart 3 I show the evolution of the CTM ranks for MKC and SPY over the past month or so.  The post-Fed meeting rally in Utilities is obvious.

Chart 2: Utilities and REITs (on the left) are the strongest sectors at the moment.  Observe that the key indexes, such as QQQ, DIA and SPY are stuck in neutral.

 

Chart 3: Utilities have steadily strengthened after the last FOMC meeting and now are much stronger than the broader S&P 500 index as a whole (here represented by the SPY ETF).

 

Strongest Stocks in S&P 500 Universe

Chart 4 shows the results of a scan ranking the S&P 500 stocks by their CTM (right-hand column).  If you look a the Sector column, you see that the top trending stocks are either Utilities or Financials (REITs).  Stuck among them, is MKC, 10th on the list, which is quite impressive for a "boring" stock.

 

Chart 4: MKC (in row 10) is among the strongest stocks in the S&P 500 universe.  Observe how the majority of the top stocks are either Utilities or REITs of one sort or other.

 

Wall Street Analysts are Neutral

The majority of the Wall Street Analysts who follow MKC are neutral , even as MKC has delivered mild earnings surprises.  Sales rose 19% in Q2 ending in May, being up 16% in constant currency terms. Adjusted EPS was $0.93 vs. $0.79 for Q2 versus a year ago.  Trade wars are not affecting the spice trade, but the data show that technical analysts and fundamental analysts can move at quite different speeds.

 

Looking Ahead: A Rally Even as Trade War Goes "Hot"

As you can see in Chart 2 above, the market indexes are trading mixed,  being bearish across the board in the short-term.  The trends by market cap (see Chart 5 below) are also negative in the short-term, and starting to weaken over the longer intervals.  Perhaps the earnings season starting in a week or two will help firm up the trends,  even as the market is attempting a short-term breakout off support at long-term moving averages (see Chart 6) despite the start of actual tariffs against imports from China.

 

Chart 5: The Vanguard Cap Weighted ETFs show that the short-term (ST) trends are bearish across most market caps.  The medium-term (MT) trends have shifted into neutral.  The intermediate-term (IT) and long-term (LT) trends are now vulnerable to continued weakness.

 

Chart 6: The Dow is trying to rebound off support near the 200-day moving average. As this 60-minute chart shows, the Dow is breaking out of a triangular consolidation, has risen above medium-term moving averages and the intra-day CTM is just rising to the top of the neutral zone.  A follow-through next week will solidify the rally.

 

 

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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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