Defensive sectors is where the money is going right now. Last week was a perfect example. Check out the rotation last week:
The four defensive sectors and energy (XLE) finished the week in positive territory. The aggressive sectors and materials (XLB) were lower. That's been the theme in 2022. If ya can't beat 'em, join 'em. As traders, we should be looking for what's working and the above sector performance should help to illustrate what's working.
Within consumer staples (XLP), food retailers & wholesalers ($DJUSFD) is the undisputed leading industry group in 2022, gaining nearly 14% over just the past month. Drug retailers ($DJUSRD) is much further down the list for the year, but it was the best-performing industry group last week out of the 104 industry groups, gaining more than 5%. One look at its weekly chart and you'll see that it just now is looking to break out after a 3-year consolidation period:
Weak markets help to light a fire under relative strength for defensive groups and 2022 is beginning to do just that for the DJUSRD. Further strength would help to confirm the breakout of a bottoming head & shoulders pattern that would measure up another 275 points to 1175.
If this breakout does occur, then I'd expect support to hold on one of its most recognizable component stocks, Walgreens Boots Alliance, Inc. (WBA):
WBA has not been a great performer, but a strengthening industry group will help to turn around its absolute price fortunes. I would not be at all surprised to see a return trip to 54 later this year. That would represent a 20% gain and, in a market environment like the current one, that wouldn't be a bad return at all.
On Monday morning, I have another strengthening industry group I'll be writing about, together with a leading stock in that group. To read more about it, CLICK HERE to subscribe to our FREE EB Digest newsletter. Simply provide your name and email address and we'll get you started! Also, I'll be hosting a free Sneak Preview event of our Model ETF Portfolio, which is nearly 2 percentage points above the benchmark S&P 500 in the latest quarter. That'll start at 4:30pm ET, just after the market closes. Learn more about our ETF strategy. We'll send out room instructions to our entire EB Digest community, yet another reason to sign up and save your seat!
Happy trading!
Tom
