Sunday Market thoughts

NG is ripping and staples and healthcare are dying

As I write this natural gas is up 6% over night. Given that it hasn’t moved much since open, barring EU open pushing it lower, it’s likely going to at least open the US cash session at 5%+. This is bullish CRK. If you followed me on that, if it rips up well past 20, keep your eye on the fade. We want to capture the explosive upside. Not the likely as explosive downside on this garbage equity. Keep your eye on it this week, if it’s going to go it’s going to go this week. The moment it stops going its time to hit the exits.

We talked a little bit about buying PEP on Friday in the sub thread. At somewhere <16 times earnings, possibly <15x NTM earnings, with close to a 4% yield, it’s very cheap. It’s not just them though. XLP (the staples ETF), looks like it’s come into a major demand zone, and I expect a solid bounce if it holds. This is going back 3 years, since before the breakout. XLP’s major holdings are WMT and COST, which I’m not in love with given how expensive they are, but if you wanted to capture upside with more cashflow, adding MO, PM, PG, or the above mentioned PEP gives you a blended yield of north of 4.3% (what bills/notes are currently yielding) and will give you upside over the next 3 years. Long staples is rarely a make money TODAY type move, but this stuff is getting unignorably inexpensive, and staples normally do better in volatile markets.

Staples also do better when the economy is better, as people often trade up from own store brands and move into premium products, like PG/PEP/KO offerings. The fact that many of these names were down 2%+, as if they had higher beta than the market says that someone big was tired of owning them, and wanted out. Again likely pointing to a short term bottom.

Though these companies would really like the dollar to stop going up every day.

XLP chart:

The other defensive sector is healthcare.