Marketview: Liquidity Wins And The Market Loses, XOM, CVX, MRK, JNJ, FCX

There’s the safety trade: consumer staples, healthcare, and utilities.  And then there’s the safety trade: seeking cover by piling into the most liquid blue chips in the world.  When uncertainty enters the picture liquidity becomes king.  My liquidity watchlist is: $T, $PFE, $WMT, $XOM, $MRK, $VZ, $WMT, $JNJ, $KO, $CVX, $PM.  These are the most important stocks to watch when the market is selling off.  When they outperform as everything else gets sold, the market is telling you that liquidity is now at a premium (and things could get much worse before they get better).  This week $XOM and $CVX caught a bid as basic materials and energy were sold off hard.  The healthcare sector traded inline with the market and yet $MRK and $JNJ are up 5% and 3.4% respectively.  The relative performance of these stocks versus their benchmark ETF (of which they are a large component) could be trying to tell you something.  We may be in for a bit of a liquidity crunch.  If you’ve never seen or heard of this phenomenon before, just scroll back in your charts to the crazy days of 2008 and compare the liquidity watchlist with the broad indexes.

Winners: $MRK, $BAX, $JNJ, $XOM, $CVX, $PEP, $PG

Losers: $BHI, $HAL, $NOV, $FCX, $MA, $V, $AXP

Whenever the market is flying to the upside, I’ve got one eye on emerging warning signs.  Likewise, whenever we’re selling off I’ve for one eye out for strength and a sign that the selling is done.  I’ve been bearish for a while, but I can’t wait to get into bull mode.  The new wild card is seasonality.  October is historically a great month for technology and large cap industrial stocks.  October is also famous for bear market turnarounds.  If we turn in October, it will be tech that leads us out.

As of now, $FCX, $BIDU and Asian indexes are your tell.  Volatility and bearish sentiment rule the day.

Read also: Jeff Hirsch: October is a Bear Killer (Reformed Broker)

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