‘Overbought and overpriced.’ Why this investor sees a bubble popping for this popular group of stocks

Investors wouldn’t be blamed for sizing up the first losing week in three for the S&P 500 and decide to start the weekend early. And stock futures are just barely positive.

Who can blame them after the mixed bag of data this week that has reigniting worries in some corners about whether the Fed could push the economy into a recession with its rate-hike plans?

That brings us to our call of the day from TheoTrade’s chief market technician, Professor Jeff Bierman, who sees a bubble ahead for consumer staples, which he calls a “‘safe haven’ rotation sector that is overbought and overpriced.”

Bierman doesn’t hold back with his warning. “We’re heading into a recession and consumer staples are priced like growth stocks when they’re actually value stocks. The Marubozo signals that we are in for a much deeper correction in consumer staples than we’ve experienced in the past couple of days,” he tells clients (more on Marubozo below).

The group of stocks he’s talking about include Walmart
WMT,
Procter & Gamble
PG,
Nestlé
NSRGY,
Coco-Cola
KO,
Campbell Soup
CPB
and PepsiCo
PEP.
Zeroing in on a couple, he points out how Campbell Soup trades at a price/earnings ratio of 20 times, yet the return on assets, a proxy for the growth rate, is at just 7.5 times.

“This stock could be cut in half and it’s still too expensive,” Bierman said, adding that it’s the same thing for Coca-Cola, which is trading at trading at 24 times earnings with a return on assets of just 10.

“Every sector of the S&P needs to come to a single-digit multiple before it signals a market bottom. Semiconductors, oil, and retail (in certain parts) are there. Consumer staples — not even close,” Bierman told clients.

Bierman is looking at one major signal for signs of this bubble bursting, that is the “biggest Marubozo in the Consumer Staples Select Sector SPDR ETF
XLP
we’ve seen since back in September.”

What’s a Marubozo? Bierman explains that via candlestick charts, which are used by technical traders and monitor the open and close of a stock on a single day. A Marubozo — from the Japanese word, close cropped — is a long-bodied candlestick that has no shadows — regarded as a strong signal of conviction by sellers or buyers depending on whether its pointed up or down.

Here’s the chart showing that candle headed down:


Bierman/TheoTrade

“The greatest opportunity to short on Wall Street, according to risk/reward, is consumer staples. This is the beginning of the breakdown in consumer staples, for the long term,” he added.

Note that Bierman nailed three big moves for the S&P 500 in 2022.

In December 2021, he forecast a possible 20% drop to 3,900 for the S&P 500 within six months, and it hit 3,930 in early May. Last June, he forecast a rally and recovery to 4,300 — it hit 4,315 by mid-August. Speaking to MarketWatch on Aug. 25, Bierman predicted a retest of around 3,600 for the index, which closed out last September at a new 2022 low of 3,585.

The markets

MarketWatch

Stock futures
ES00

YM00
are mixed, with Nasdaq-100 futures
NQ00
on the rise thanks to heavyweights Alphabet and Netflix. 10-
BX:TMUBMUSD10Y
and 2-year Treasury yields
BX:TMUBMUSD02Y
rising after tapping roughly 4-month lows on Thursday. The dollar
DXY
is rising, along with oil prices
CL

BRN00,
set for a winning week.

Bitcoin
BTCUSD
is up slightly and hovering at just under $21,000. In the latest crypto domino to fall, lender Genesis has filed for bankruptcy, saying it has as much as $10 billion in liabilities.

The buzz

Google parent Alphabet Inc.
GOOGL
announced it will lay off 12,000 employees globally, or 6% of its workforce, becoming the latest big tech name to cut head count. Shares are rising in premarket trading.

Netflix
NFLX
stock is climbing in premarket after the streaming-video giant reported forecast-beating subscriber adds of 7.7 million, and founder Reed Hastings said he’ll move to executive chairman and new co-CEO was named.

Opinion: Netflix co-founder Reed Hastings showed Silicon Valley the proper leadership path

Ericsson
SE:ERIC

SE:ERIC

ERIC
stock is falling after the Swedish telecom equipment maker warned of an uncertain near-term outlook and reported disappointing profit amid weak orders. Shares of rival Nokia
NOK

FI:NOKIA
are also down.

Next week we’ll hear from a massive blue-chip lineup, including Microsoft
MSFT,
3M
MMM,
Tesla
TSLA,
Boeing
BA,
McDonald’s
MCD,
Intel
INTC
and more.

Genius Group
GNS
is soaring another 52% in premarket after the Singapore-based education company said it had appointed a former F.B.I. official to probe alleged illegal trading in its stock.

Costco Wholesale’s
COST
board reauthorized a stock buyback program of up to $4 billion. 

T-Mobile US
TMUS
said a cyberattack exposed limited personal information of some 37 million customers, but not “the most sensitive kind.”

Philadelphia Fed President Patrick Harker is due to speak at 9 a.m., followed by existing home sales and then Fed Gov. Christopher Waller will give remarks later.

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The chart

A popular meme stock — Bed Bath & Beyond
BBBY
— is getting less popular with retail investors, according to this chart from Vanda Research.


Vanda Research

“Given the ongoing poor investor sentiment and the weakening macro backdrop, it is not uncommon to see sporadic short squeezes driven and then chased by retail investors,” said Marco Iachini, senior vice president, Giacomo Pierantoni, head of data and Lucas Mantle, data science analyst at Vanda Research, in a note.

“In general, we still view any sustained meme rally as unlikely unless markets enter a more friendly macro regime (goldilocks, or postrecession rebound). As a result, we expect BBBY to sell off over the next few days as retail traders rush to lock in profits before too late,” they said.

The tickers

These were the top searched tickers on MarketWatch as of 6 a.m. Eastern:

Ticker

Security name

TSLA Tesla

BBBY Bed Bath & Beyond

GNS Genius Group

GME GameStop

AMC AMC Entertainment

NFLX Netflix

AAPL Apple

MULN Mullen Automotive

NIO NIO

WISA Wisa Technologies

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