2 Sectors Headed in Opposite Directions

From a contrarian perspective, Wendys Co (NASDAQ:WEN) and Starbucks Corporation (NASDAQ:SBUX) are enticing -- Market Vectors Gold Miners ETF (NYSEARCA:GDX), not so much

by Alex Eppstein

Published on Jul 8, 2015 at 3:20 PM

The stock market has been volatile in recent weeks, with overseas worries taking their toll. Amid this risk-laden environment, however, certain sectors have managed to outperform -- while others have been continued to sink. Today, we'll take a look at one outperforming sector -- restaurants, with a special focus on Wendys Co (NASDAQ:WEN) and Starbucks Corporation (NASDAQ:SBUX) -- and precious metals, where the Market Vectors Gold Miners ETF (NYSEARCA:GDX) has been getting destroyed.

Restaurant stocks have been on fire. Of the 20 names we follow, the average year-over-year return is 26.3%. Nevertheless, fewer than half of analysts consider these stocks a "buy" or better. Also, short interest generally makes up more than one-tenth of each equity's total float -- suggesting ample sideline cash is available to sustain upward momentum on an unwind situation.

Like rival Yum! Brands, Inc. (NYSE:YUM), WEN is lower this afternoon on the broad-market sell-off. While the shares are down 0.9% at $10.51, they remain more than 16% higher year-to-date. Nevertheless, sentiment is overwhelmingly negative toward the burger joint, with 90% of analysts sporting "hold" or worse opinions, and almost 10% of the stock's float sold short. In other words, a capitulation among these skeptics could result in tailwinds for Wendys Co (NASDAQ:WEN).

In a similar vein, SBUX has been a beast, rallying more than 30% year-to-date to trade at $53.45, and perched just below its all-time peak of $54.75 from late June. Future price-target hikes could be in the cards, as Starbucks Corporation's (NASDAQ:SBUX) average 12-month price target of $55.72 stands at a slim 4.2% premium to current levels.

On the opposite side, commodities have been taking it on the chin -- including tonight's earnings focus, Alcoa Inc (NYSE:AA). More specifically, precious metals have been weak. Of the 20 names we follow in this sector, just one is above its 80-day moving average, and the typical year-over-year loss is 34%.

Mirroring this is GDX, which at $16.93 has surrendered almost 38% since this time last year. In recent weeks, the shares have also encountered pressure from their 10- and 20-day moving averages. Should Market Vectors Gold Miners ETF (NYSEARCA:GDX) continue to struggle, a capitulation among option bulls could result in headwinds. Currently, the ETF sports a 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.14 -- higher than 78% of comparable readings from the previous year.

A Schaeffer's exclusive

6 Sectors for Summer

Access your FREE insider report before it's too late!



NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories

The Next Big Player in U.S. MJ Boom
Most pure-play marijuana stocks in the U.S. trade on the Over-the-Counter stock exchange.
Planet Fitness Stock Lifted Amid Re-Opening Optimism
Planet Fitness reopened around 800 facilities in North America
Coffee Stock Drops Despite Cost-Cutting Initiatives
Starbucks asked employees to further limit working hours or take unpaid leave
The Big Bankruptcy You Should Be Afraid Of
Porter Stansberry is making a concerning prediction.