Defensive stocks are stocks of companies that no matter what the economy does people will buy those products.
So companies like Colgate(in a recession you still need TOOTHPASTE), COKE(KO), PEPSI (PEP), Proctor and GAMBLE(PG)(You still are going to buy soap and shampoo in a bad economy), Budweisher(BUD), Exxon-Mobile(XOM)( you are still going to drive to work in a bad economy with oil at $75bucks a barrell).... General Mills and Kelloge(k), McDonalds(MCD).
Defensive stocks tend to pay out dividends also which help lighten the fall.
When a BEAR market happends these super-mega captialization stocks lead the way, these are some stocks you will find in DOW 30. Which are the 30 largest CAP stocks in the STOCK MARKET..
They have millions, if not billions of shares outstanding so little moves up or down drive the market.
The DOW is like an AIRCRAFT carrier, very little movement makes huge waves, where a small dingy is very nimble but make very little waves...
Defensive Stocks Cannot Lead This Market Right Now
Wednesday August 2, 10:34 am ET
By Gary Kaltbaum
We told you someone is going to jail. Major investigations now expanding on all the suspicious trading before recent buyouts including (NYSE:HCA - News). When will people ever learn that if you trade on insider information before a deal, you will have the SEC proctologist visiting you within days.
GDP drops off the ledge and is way below estimates. Gee...we had no idea! Just because RETAIL, GAMING, RESTAURANTS have been falling off a cliff...we had no idea. Once again, the market forecasted the falloff in GDP. We love the spin. It is now a great thing when the economy slows markedly. Didn't they say it was great for markets when the economy was strong?
Mel Gibson. Cant write what I am thinking. We really liked his movies.
Floyd Landis: would it be a pun if I said...WHAT A DOPE!
Dennis Kucinich calls for a 100% windfall tax on Oil Companies. I will let that bit of comedy stand on its own.
We told you the options back-dating scandal will have legs. We believe we are just in the first inning and do believe it is going to get nasty.
If BERNANKE and the FED raises rates again, get the straightjackets. In fact, we believe a cut in rates is in order here. Fed funds are at 5.25% with the 10 year under 5%...begging the Fed to stop raising.
This is what was said in the last report we put out:
"I have no idea how far this bounce/rally lasts or how far it goes. I do know that when support levels are held, it is a near term positive that will always lead to upside testing. So far, I have not seen the conviction nor have I seen the leadership I want to see to tell me this move will have legs...but hey...I am open to anything happening. I gather we will know a lot more over the next few days as the market enters resistance areas. I will say this. The support levels I outlined had best hold or what has been an ugly 2-plus months...will just have another leg down."
We have not changed our stance. We believe a bear market, bear phase, bear anything...whatever you want to call it...started on May 11. We have had 3 rallies in this bear...and so far, all failing. The recent failing looks to be right at short-term resistance at 1280 S&P...but do believe a move above is possible. We won't go into the shenanigans that keeps occurring into month-end. Just that you need to know every rally has ended into the end of month window dressing. Tuesday's action looks to be the same. Of course, window dressing is illegal.
Look how easily the NASDAQ/NDX were sent lower on Tuesday. We have told you on several occasions that these areas lead the market both up and down. The recent bounce was anemic and on light volume. We have told you many times in the past, during bearish phases, the DOW and S&P will hold up while the rest of the market leads down. This continues.
Speaking of light volume, the whole move up in the past few days was on light volume. Until we see a confirming high-volume follow through day, we are suspicious of any rally. We believe good and bad markets leave footprints. One of the most important footprints is the conviction measured by volume on any move. Always keep this in mind.
There is no way this market can be led by all the DEFENSIVE areas we have named in the past. It is simply indicative of a market in trouble. On top of that, there is literally no growth leadership in the market. In fact, most leaders of the past cycle have been smashed to bits. We continue to believe defense is the best offense.
We do like:
GOLD and SILVER. We believe they have turned the corner to the upside. We have no clue how far the move goes.
OILS...but are now getting overbought. We were initially very right on our top call on the OIL STOCKS recently. We were subsequently very wrong as they turned right back up...and straight up. Big-cap OILS like (NYSE:XOM - News) are the leaders right now.
DRUGS, DRUG STORES, UTILITIES, MEDIA, BIG FINANCIALS, TELECOM SERVICES...but that is about it.
The tape is now becoming very split and very nauseating. We are just letting you know that we do not believe the leadership we are seeing will last for too much longer. The market needs the SEMIS, RETAIL, GAMING, BIOTECH, RESTAURANTS and all the growth areas. If they do not show up at the door, the day the OILS and other areas holding things up poop out, it will be the start of the next time down. Hoping for better days ahead....