These stocks are sinking—and that could be good for the market

‘Safety stocks’ roll over

Several "safety" stocks have reversed their paths higher this year.

A handful of high dividend-yielding names that have outperformed the market over the last year – Johnson & Johnson, AT&T, Wal-Mart and Philip Morris, to name a few – have come off their 52-week highs, perhaps indicating investors' pulling out of high-dividend yielding stocks as an interest rate hike looms.

This could be a good sign for the market. Historically, these particular names – Johnson & Johnson, AT&T, Wal-Mart, Verizon, Home Depot, Philip Morris and Altria – tend to lag in bull markets, according to Ari Wald, head of technical analysis at Oppenheimer.

Examining an equal-weighted index of these stocks relative to the market, Wald observes that the safety stocks "were really your market leaders for the better part of the last couple of years. They have done very well, as kind of bond proxies. They have higher dividends and as rates have trending lower for much of the past couple of years, they've performed quite well."

"But now we're seeing some profit-taking in those groups. What's very encouraging is that we're seeing more cyclical areas of the market have accumulated, which we actually think is very bullish for the market," Wald said Wednesday on CNBC's "Trading Nation."

Erin Gibbs, equity chief investment officer at S&P Global, sees Johnson & Johnson and AT&T — 9 percent and 10 percent off of their 52-week highs, respectively — as good defensive plays and believes both will recover from recent dips. Gibbs said she sees good value in the pharmaceutical company, now growing its segment of oncology drugs.

"We've seen the higher dividend-yielding stocks really get hit in the second half of the year and moving more toward higher-growth stocks," like cyclicals, Gibbs, said Wednesday on "Trading Nation."

Johnson & Johnson this week announced better-than-expected earnings and raised its full-year guidance.

"And AT&T, with their acquisition of DirecTV, they are now able to do a lot of bundling, they have more mobile," Gibbs said. Both Johnson & Johnson and AT&T are long-term holdings in S&P Global portfolios.

Wal-Mart, one of the best-performing names in the Dow this year, has fallen 8 percent off its 52-week highs; tobacco manufacturers Philip Morris and Altria Group have fallen 7.9 and 11 percent off their one-year highs, respectively.

Bottom line, according to Wald?

"One, I think this is a bull market that we're in, and point two, we think you want to own the cyclicals, not the safety stocks."