Investors try to survive in 'zombie apocalypse market' amid consumer staples shakeup: Strategist

TheoTrade Chief Market Technician Jeff Bierman discusses the state of the market and details which sectors are poised to maintain their current momentum.

Video transcript

SEANA SMITH: It's great to talk to you again. So I think investors are trying to figure out where the market is headed from here, what exactly we should be bracing ourselves for. What do you think that is?

JEFF BIERMAN: Well, thanks for having me back, Seana. It was nice to see you again. Listen, every time I come on here, I have a theme that I attach to the market. So last time I was here, I called it the "Seinfeld" market because it was a market about nothing. Well, that's changed.

We're now officially in the zombie apocalypse market. And what do I mean by that? Simply means this-- there are only two sectors outperforming in the last three months. You have two flat, you have seven underperforming, you have the banks that have been routed.

Oil has been routed. Retail has been destroyed. You got two sectors carrying the market. You've got information technology and you have consumer staples in the form of food and personal hygiene products. Now, what does that mean? It means the market's bracing for a very, very hard landing and that people are like, hey, it's just duck and cover. Just buy me things that I'm getting ready just to survive in a zombie apocalypse, like food and personal hygiene, and get me an Apple phone so I can make a call or text somebody when we land there.

So I see the market as potentially having a hard landing. And it's kind of, at this point, not factoring in a hard landing at all by the way it's acting. But things can change very quickly. And this 80 point rally today is clearly a gamma squeeze on the back of Apple, which I call the Bridge Over Troubled Water, because it actually saved the market for at least another day.

AKIKO FUJITA: So let's try to turn this into positive conversation. You mentioned consumer staples. What are you seeing in terms of the trend there? And can you elaborate on what a triple top signals to investors?

JEFF BIERMAN: Yes, certainly. I'll address one each. Consumer staples are massively overbought, but for good reason. Their prices are up, their margins are up, their numbers are fantastic. And there's not much slippage in terms of volume.

So they've doubled the price on most products, and they're happy about it. And that's showing in the profits. But on the other hand, when you look at other sectors that are not carrying the market, because consumer staples are 9%, that's not going to get it done.

But consumer staples make up 9% of the S&P. Technology information makes up about 29%. So about a third of the S&P is carried by two sectors. But we're up against a very key resistance level, Akiko, and that is 4,200.

So this is what we call in the business a classic triple top. But at the same time, it's an ascending triangle from last October. So if you were to connect a line across the October bottom, which was 3,502, to where we are now, you're having a compression of volatility into a very tight range-- you can look at a Bollinger Band, but this is a lot easier to understand. One of two things is going to happen.

We're going to come up to the Apex of this triangle, and we are going to break out to the upside or we're going to fail and break out to the downside. Now, Thomas Wolkowski's statistics that we did over 12 years shows that in a classic ascending triangle pattern, there is a 64% chance-- 64% chance-- of a breakout to the upside.

But don't misconstrue to think that, oh, because the probabilities are there, it's going to happen. You also need to have tailwinds push you through, such as lower interest rates, or a rate cut not happening, or something like better sales-- not happening-- or something to the effect like inflation coming down-- not happening. So it's going to be interesting to see what happens when we get there. But when it happens, it's going to break hard one way or the other, no doubt about it.

SEANA SMITH: So, Jeff, what does that mean, then, for investors? How should they be positioned given the fact that it's still pretty uncertain about which way we're headed?

JEFF BIERMAN: I would be actually tracking, Seana, the gold market. Gold has been very strong. Gold is telling you that it's an inflationary hedge. It's an uncorrelated asset class that doesn't move with the S&P 500. So if gold tends to remain strong, I would be cautious.

If gold starts to break down, that could be a sign of disinflation or inflation under control, getting the rates maybe at the end of the year for the Fed to pivot and turn down, and that could catapult stocks. So I'm watching gold.

I'm also watching the bond market. And the bond market is kind of in no man's land right now. It's just trading sideways in a very tight range. So if bonds break down, likely the S&P will go with it. But if bonds can break higher, the S&P actually might go with it because it might be a signal that interest rates have not only peaked, but there's no more rate hikes in the cards for the rest of the year.

AKIKO FUJITA: I mean, what's the magic number that they should be looking for when you talk about bonds?

JEFF BIERMAN: It's not necessarily a magic number for bonds. I look at the bond futures, Akiko-- so me, it's been trading between 129 and 132. But if it takes out that 129, 128, that's the key level. That's the bond level.

The interest rate handle you need to watch is about 4%. We've been stuck between 3%, 5%, and 4% now for the better part of the year. And eventually, it'll break one way or the other, because the more you compress volatility, eventually, it becomes a coiled spring and it will make one massive move one way or the other. So I'm bracing for some volatility, some big volatility around the corner this summer-- perhaps in mid-June.