Procter & Gamble Stock Hits All-Time High in Flight to Safety

Dow component The Procter & Gamble Company (PG) posted an all-time high last week, joining a growing list of "safe haven" plays that are attracting strong buying interest in the first quarter. The 2.35% forward dividend yield has grown more appealing since the summer of 2019, when bonds surged higher and yields dropped to multi-year lows. The Clorox Company (CLX) stock also looks set to join the new highs list, paying an equally attractive 2.57% dividend yield. 

The coronavirus has forced a growing number of investors to seek diversification in the tenth year of a decade-long expansion, taking exposure in defensive instruments that can withstand a major downturn. While blue-chip indices hit new highs last week, the outbreak is likely to take a major toll on first quarter GDP in the United States, Europe, and Australia because China is now the world's biggest consumer market and its buying power has been disrupted.

Tesla, Inc. (TSLA) offered a perfect example of the bearish forces at work, dropping more than 30% in two sessions after warning that automobiles rolling off the Shanghai Gigafactory assembly line won't be delivered in early February due to the outbreak. And although businesses that have suspended operations are forecasting just brief disruptions, infectious disease experts believe that the outbreak will last until hot weather returns to China in the springtime.

PG Long-Term Chart (1990 – 2020)

Procter & Gamble stock charged higher during the 1990s, splitting twice during an ascent that topped out in the upper $50s at the start of the new decade. It gut cut in half in the next 12 months, finding support in the mid-$20s, and completed a round trip into the prior high in 2005. A 2006 breakout stalled in the mid-$70s in the fourth quarter of 2007, giving way to a steep decline into the $40s during the 2008 economic collapse.

The subsequent recovery wave reached 2007 resistance in 2013, triggering an immediate breakout and uptrend that topped out in the low $90s in December 2014. That level marked resistance until a February 2019 breakout that attracted healthy buying interest for the rest of the year. This bullish tide has continued into the first quarter of 2020, lifting the stock to an all-time high at $128.09 last week.

However, the shallow trajectory since September 2019 is worrisome because the stock hasn't carved an intermediate correction since December 2018. The monthly stochastics oscillator has reacted to this minor change with two bearish crossovers at extremely overbought levels. Given this set-up, a minor decline through $120 would set off a sell signal that forecasts at least six to nine months of relative weakness.

CLX Long-Term Chart (1990 – 2020)

Clorox stock also gained significant ground in the 1990s, rallying from the single digits into the mid-$60s in less than niine years. The 1999 peak marked resistance for the next 13 years, ahead of a bear market decline that found support in the upper $20s in the fourth quarter of 2000. A slow-motion recovery wave finally reached the prior high in 2005, triggering an immediate reversal, followed by failed breakout attempts in 2006 and 2007.

A major downturn during the 2008 economic collapse ended at a five-year low in the mid-$40s, giving way to a bounce that reached 2005 resistance once again in 2010. That level continued to trap bulls into 2013, when the stock took off in a sustained trend advance that mounted $140 in the summer of 2016. It failed 2017 and early 2018 breakout attempts, while a fourth quarter buying surge posted an all-time high at $167 in November.

Price action then eased into a broad rectangle pattern with support near $142, settling within two point of the 2018 high last week. The on-balance volume (OBV) accumulation-distribution indicator hasn't kept pace with the most recent uptick, setting off a bearish divergence that can be eliminated with a final pullback to the 200-day exponential moving average (EMA) in the $150s or a breakout followed by a consolidation phase on top of new support.

The Bottom Line

Proctor and Gamble and other blue-chip defensive plays are attracting impressive first quarter buying interest.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.