It's no trick: Sin stocks might just be the place to be this Halloween.
No, sin stocks don't have anything to do with the ghosts and ghouls wandering your neighborhood looking for candy this weekend. Instead, alcohol, tobacco, gambling, and weapons firms are all classical examples of businesses that qualify as sin stocks.
This unique corner of the market has been on fire lately, as the broad market has bounced back -- and it's looking well-positioned to keep on leading this fall.
Most people think of sin stocks as a defensive bet. But the important benefit to sin stocks is that they don't just protect downside – many of them offer upside growth when markets are frothy and consumer takes move up the value chain. That's why recession resistant revenues and sticky customer bases are the norm. The devil's in the details with sin stocks; because these firms generally sport wide economic moats and deeper margins than traditional consumer plays, sin stocks benefit from an extra qualitative boost that you can't find in any other group.
And to find the sin stocks that look best positioned to outperform this fall, we're turning to the charts for a technical look.
In case you're unfamiliar with technical analysis, here's the executive summary: Technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, here's a rundown of five technical setups that are showing solid upside potential right now.
Up first is $3 billion tobacco company Vector Group (VGR) - Get Report . Vector has enjoyed some solid upside in 2015, rallying about 14% since the beginning of the year. Compare that with the less than 1% upside in the big S&P 500 index over that same timeframe. But the real story in Vector isn't how this stock has performed in the past; it's how Vector is pointing for the future. Shares are testing a major breakout level this week.
Vector is currently forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance up above shares (in this case at $24.25) and uptrending support to the downside. Basically, as Vector bounces between those two technically important price levels, it's been getting squeezed closer and closer to a breakout through our $24.25 price ceiling. When that happens, we've got our buy signal.
Relative strength, (not to be confused with RSI at the top of the chart) adds some extra confidence to the upside in Vector Group right now. That's because this stock's relative strength line is holding its uptrend from the end of the summer, indicating that shares are continuing to beat the rest of the market long-term.
Keep a close eye on this one. If $24.25 gets taken out, it's time to be a buyer.
We're seeing the same price setup in shares of $27 billion alcoholic beverage stock Constellation Brands (STZ) - Get Report right now. Like Vector Group, Constellation is showing traders a pretty textbook ascending triangle pattern. Unlike Vector, this setup has already broken out. Here's how to trade it now.
Constellation spent August through the start of October setting up an ascending triangle setup with a breakout level at $130. That pattern triggered at the start of this month, and after a quick move higher, shares have been consolidating up above newfound support at $130. From a risk/reward standpoint, $137.50 looks like a solid secondary breakout level to watch for late-to-the-game traders to use as a buy signal. If Constellation can catch a bid up above $137.50, it means that the consolidation is over and shares are likely to continue moving up.
Risk-management is key for investors thinking about taking a trade like this. The 50-day moving average has been a good proxy for support since the middle of the summer, and that makes it a logical place to park a protective stop.
2015 has been a tough year for shares of mid-cap brewer Boston Beer (SAM) - Get Report . Since the calendar flipped to January, Boston Beer has shed about 11% of its market value, trailing the S&P 500 by a big margin during a year where performance has already been hard to come by. But after a key breakout earlier this month, frustrated SAM shareholders could be in for a reprieve.
Boston Beer has spent most of this year in a pretty textbook downtrending channel. That channel has identified the high-probability range for shares of this beer stock to remain stuck within, and it remained inviolate from the end of February through the beginning of this month. But something shifted in the second week of October, shoving shares of Boston Beer through trend line resistance. That was the big buy signal in SAM, and there's still time to get in on the trade here.
Like with Constellation, shares of Boston Beer have been consolidating sideways after the breakout. Sideways consolidations aren't uncommon following big moves. They give traders a chance to catch their breath and figure out their next moves. That's why we're seeing the sideways action in Boston Beer this fall. A push through very short-term support at $260 is our signal that shares are done resting and reading to resume their rebound. Just keep an eye out for earnings set to hit this week.
It's becoming a bit of a stretch to call aerospace giant Boeing (BA) - Get Report a "sin stock". While this company once generated about half of sales from the defense sector, it's been shifting its sales mix more toward commercial aviation in recent years. In spite of that change, this chart looks solid, so we're including it on our list of breakouts today.
Boeing is showing the exact same setup as we just looked at in Boston Beer; the big difference here is that the breakout isn't as far along yet. While shares have been in a downtrend for almost all of 2015, Boeing shoved its way through support at the end of last week, triggering a textbook buy signal and indicating a long-term change in trend.
Momentum, measured by 14-day RSI, provides some extra evidence for the reversal. 14-day RSI, our momentum gauge, has been in an uptrend since August, making higher lows that confirm the bullish action in Boeing's price. If you decide to be a buyer here today, keep a tight protective stop in place.
Last up on our list of breakout trades is casino operator Wynn Resorts (WYNN) - Get Report . Quite frankly, Wynn has been an awful performer in the last year. Since January, shares of this gaming stock have been more than halved. But a classic reversal setup that's been forming in shares for the last couple of months could be readying Wynn for an about-face in the final stretch of the year.
Wynn Resorts is currently forming an inverse head and shoulders pattern, a bullish price setup that signals exhaustion among sellers. You can spot the inverse head and shoulders by looking for two swing lows that bottom out around the same level (the shoulders), separated by a bigger trough called the head; the buy signal comes on the breakout above the pattern's "neckline". That's the $78 level in Wynn Resorts.
Lest you think that the head and shoulders is too well known to be worth trading, the research suggests otherwise: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant." That's a good reason to keep a close eye on Wynn's $78 level here.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.