There doesn’t seem to be much in the way of uncertainty in this market at the moment. U.S. stocks once again set new all-time highs on Monday ahead of quiet, flat trading on Tuesday. The S&P 500 has gained 28.6% so far this year. That index is on track for its best year since 2013, and its second-best performance in over two decades.
For Thursday’s big stock charts, however, that’s not necessarily the case. To some extent, all three stocks have missed out on at least some portion of this year’s rally. And from a technical standpoint, all three look somewhat shaky heading into 2020.
That’s not necessarily surprising. This has been a momentum market, particularly in recent months. Investors who have done well riding winners have been given little reason to change strategy. They might well question the outlook of a stock that can’t rally even amid broad optimism toward U.S. stocks.
For those who focus on value, however, 2019’s laggards can be 2020’s opportunities. With so many quality companies at all-time highs, and potentially questionable valuations, value investors have to dig a bit deeper.
The battle between those two viewpoints likely will shape these big stock charts as 2020 arrives. Indeed, that battle may shape trading in the market as a whole.
For most of this year, Boeing (NYSE:BA) has been stuck in a range between $320 and $375. Shares again have bounced off support, but the first of Thursday’s big stock charts suggests another rally could be difficult:
- The double (and nearly triple) bottom formed at $320 clearly is bullish — and it makes some sense. Boeing stock obviously has been affected by the pair of tragic 737 MAX crashes. But as multiple analysts have put it, Boeing is “too big to fail.” Rival Airbus (OTCMKTS:EADSY) has years’ worth of orders in its pipeline already; airline customers don’t have another option. And the U.S. government likely will not let the company fail or even struggle. At some point, bulls can argue, near-term issues will recede, and the long-term bull case will return.
- At the same time, there’s a logic behind the repeated resistance at $375. A hoped-for return to service by the end of this year has failed to arrive. That has led to production cuts and was likely a catalyst in the ouster of CEO Dennis Muilenburg, which sent BA stock higher. Fines, lawsuits, and compensatory payments to customers like Southwest Airlines (NYSE:LUV) will total in the billions of dollars. And there’s still the possibility that the MAX never fully satisfies regulators worldwide.
- As a result, rangebound trading in BA stock seems likely to continue until the MAX problem gets fixed. That was my take six months ago, and trading since seems to confirm that the market, too, is waiting for a resolution, one way or the other.
General Mills (GIS)
The second of our big stock charts, General Mills (NYSE:GIS), shows rangebound trading over the past several months. Despite an earnings beat last week, the near-term outlook is concerning:
- $53.50 or so is a key level, but at the moment looks like potential resistance. Perhaps more concerning from a near-term standpoint is a so-called “death cross” in which the 50-day moving average crosses below the 200 DMA. If GIS stock keeps falling below that 50-day level, there’s not much left in terms of support.
- Here, too, there’s a logic behind recent trading. General Mills is trying to pivot away from challenged categories like cereal and yogurt, most notably through its acquisition of Blue Buffalo last year. At 15x forward earnings, and with a 3.7% dividend yield, there’s a case to “get paid to wait” for that pivot to play out.
- That said, many consumer stocks have struggled with similar efforts. Secular headwinds like private-label adoption and moves away from sugary cereals almost certainly aren’t going to abate. Meanwhile, Conagra Foods (NYSE:CAG) posted a blowout report last week, and trades at a roughly similar valuation on a forward basis. Some investors may rotate into that name, particularly if a 16% post-earnings spike in CAG stock reverses. GIS stock is cheap, but the question heading into 2020 is if that alone will be enough. It may not be.
Levi Strauss (LEVI)
A month ago, Levi Strauss (NYSE:LEVI) looked like it was in trouble. Near-term moving averages were providing resistance, and a descending triangle pattern suggested support might give. But, as the third of Thursday’s big stock charts shows, LEVI instead broke out. The question now is if that momentum can continue:
- Trading in the last few sessions does suggest at least the possibility of a reversal. LEVI stock did get to a five-month high, but has settled under $20, barely above early October highs. The 200-day moving average might provide resistance. And volume during the rally was relatively light: 30-day average daily volume at the moment is near the lowest since the company’s March initial public offering.
- Even after the rally, LEVI stock is reasonably cheap, at 17x forward earnings. A 3.06% dividend yield helps the case as well. But even winners in denim have struggled, with American Eagle Outfitters (NYSE:AEO) a noted laggard despite share gains in the category. The case for LEVI seems to come down to whether it’s more a stable apparel manufacturer like VF Corporation (NYSE:VFC) or a retailer like AEO. It’s worth noting that VF’s denim spin-off, Kontoor Brands (NYSE:KTB), trades at just 11x forward earnings, a noted discount to LEVI, and offers a higher 5.4% dividend yield.
- Fundamentally and technically, then, there are reasons for caution despite good news on the surface. LEVI still is cheap, and the breakout of late could well continue after a consolidation. But shares probably aren’t cheap as they look — and the chart may be signaling a reversal.
As of this writing, Vince Martin has no positions in any securities mentioned.