As some of the hotter markets from January begin to cool off, you could be forgiven for thinking that some of this money might move to less volatile, defensive stocks for safe haven. After all, if buying banks trading in bear market territory represents 2012’s version of the “risk on” trade, then the shift away from that more aggressive posture should, as it did in 2011, mean higher prices and more aggressive bidding in the market for stocks like Pfizer (NYSE: PFE) and General Electric (NYSE: GE).
But as measured by exchange-traded funds like the S&P Dividends SPDRS ETF (NYSE: SDY) and the iShares Dow Jones Select Dividend Index Fund ETF (NYSE: DVY), traders and active investors so far are having none of it. Dividend-paying, consumer defensive stocks – and the funds that count them among the major holdings – continue to experience significant selling pressure that has many of these ETFs trading at their lowest levels in weeks.
The iShares Dow Jones Select Dividend Index Fund ETF and the S&P Dividends SPDRS ETF have both closed lower for three days in a row, finishing in oversold territory above the 200-day moving average. The current sell-off in these funds, as well as in the First Trust Value Line Dividend Index ETF (NYSE: FVD), is the first since they rallied into bull market territory in mid-December.
Heading into trading on Tuesday, both DVY and FVD already had earned “consider buying” ratings of 8 out of 10, while SDY held only a neutral, 6 out of 10. But the severity of the selling in all three funds has boosted their ratings to 9 out of 10, reflecting the increasingly emotional selling which is dominating these markets in the short-term. Both DVY and SDY have short-term, positive edges of just over half a percent.
There are a number of individual stories about many of the sectors these typically large-cap, consumer defensive, dividend-paying stocks come from. But whether the issue is exposure to European consumers (and the lack thereof) or patent expiration in pharmaceuticals, the bottom line in the short-term is that many of these stocks and ETFs have pulled back to levels where, historically, buyers have come off the sidelines. As such, expect to see positive resolutions – or at least positive spins – to many of these stories as these defense markets reach short-term bottoms, reverse and begin to head higher.
Be sure to read our latest column from 7 Stocks You Need to Know: Trading a Double Shot of Peet’s Coffee and Tea.
David Penn is Editor in Chief of TradingMarkets.com.