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A handful of sectors are holding up better than expected in this wicked September market. These mavericks have avoided the surgeon's knife for a variety of reasons, but mostly due to their reputations as safe havens. Will they stay resilient as the crisis broadens, or
and give up on all equities?
At the top of the list, we have classic recession plays, which include soaps, beverages and consumer non-durables. These issues performed better than the broad market in the 2000 to 2002 bear market. A case in point:
, which rose over 50% during that period. Let's flash forward and see how the company is faring during this downturn.
The stock ticked higher in a solid uptrend between 2003 and 2007, rising to an all-time high at 56.89 and pulling back with the broad market into January of this year. It bounced in the upper 40s and tested that level during the July selloff. It's been nothing but good news since that time, with price nosing above last year's high earlier this month.
Although the stock shows no progress above the high, it's basing nicely and avoiding sharp volatility hitting other corners of the equity universe. Accumulation looks strong at these levels, as market players move their capital out of popular growth stocks. As tough economic times continue, the cereal maker could head into the 60s.
Not all defensive stocks did well in the last bear market. For example,
simply ran sideways for two years, eating up opportunity-cost and frustrating shareholders. The stock is at a disadvantage this time around because it's still working its way out of a major decline that began in January when other stocks were pounding deep lows.
The mega beverage company bounced in July, but progress since that time has been unremarkable. However, contained price action may work through the final leg of a double bottom that will eventually yield higher prices, The first buy signal will come on a rally over the 200-day moving average at 55.
Many education stocks are trading well above their 2008 lows this month, with a number of sector leaders attracting a steady bid. The group did well during the last secular downturn and looks like investors are hoping that lightning will strike twice. However, this is strictly a stockpicker's market, so tread lightly in the group.
is currently the strongest play in the sector. It rallied to a two-year high at 18.25 in December and dropped like a rock, bottoming out in single digits in the first quarter of this year. It bounced strongly in April, returned to the high by mid August, and rolled over once again.
Support at the 200-day moving average contained the latest decline, yielding a quick recovery back to the high on Sept. 19. The stock has been moving lower since that time within the two-month trading range. Overall, price action looks like a broad cup-and-handle pattern that will eventually yield a strong breakout.
Health care stocks are on everyone's agenda during this severe market downturn. However, the sector is a mixed bag, because some blue-chip components hold large investment portfolios that are vulnerable to current events. Additionally, the national elections are affecting these stocks, with reform issues adding uncertainly in 2009.
was one of the strongest stocks of the last bear market and is well positioned to resume its leadership role this time around. The stock posted an all-time high at 79.10 in early January and fell to earth with the broad market. Since bottoming in March, it's been stair-stepping higher in a mixed pattern.
The broad outline in the last six months looks like a bullish ascending triangle. This pattern usually prints three deep lows, so this week's selloff could mark the final down leg before a recovery and breakout. But you'll notice it took six weeks for the stock to recover after the last plunge to support so, for now, let's just wait and watch.
Biotech is making a limited comeback after a tough August and early September. The sector's main indices and exchange-traded funds are holding above long-term support, while investors rediscover the group and relieve broken sponsorship. These positive factors increase the odds for a decent fourth quarter and renewed market leadership.
shows a remarkably bullish pattern in this battered market environment. It rallied to a six-year high at 59.18 in October and pulled back into March. The stock resumed its strong uptrend at that time and rallied above the old high in July. It jumped another 10 points before stalling out and dropping into a sideways pattern.
The deep Sept. 19 spike was an aberrant tick and didn't affect last week's positive price action. The stock pulled back sharply on Monday but shows excellent support around 62. A higher low at or near that price level could precede a breakout that lifts the stock into the mid-70s.
Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.
Farley is also the author of
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