Companies that distribute food, drugs and other retail items aren't often the most followed companies in the financial markets due to the unexciting nature of their underlying products. Relatively speaking, the media industry does tend to catch a bit more attention than those mentioned before due to rapid technological developments and an inherent level of lucrativeness for those that can operate at scale and can do it well.
The consumer services segment is often underweighted in many portfolios. In this article, we'll take a look at three charts suggesting that this sector could prove to be one worth watching over the coming months and that it deserves to be a core holding for those looking for stable growth during times of growing volatility and geopolitical uncertainty.
iShares U.S. Consumer Services ETF (IYC)
One of the best ways for investors to get a sense of where a major segment of the market is headed is to analyze key exchange-traded products like the iShares U.S. Consumer Services ETF (IYC). As mentioned above, this sector comprises companies that distribute food, drugs, media and other retail items.
As you can see below, the price of the fund has recently closed above the combined support of its 200-day moving average and an influential trendline. The breakout will likely be used by followers of technical analysis as a signal to place a long position as close to current levels as possible in order to take advantage of a lucrative risk-to-reward scenario. Stop-loss orders will likely be placed near $195.85, and it wouldn't be surprising to see a move beyond the psychological $200 mark act as a catalyst for a significant surge in momentum. Short-term price targets will undoubtedly be placed near the 52-week high of $213.17.
The Home Depot, Inc. (HD)
When it comes to the retail home improvement market, the dominant market leader is The Home Depot, Inc. (HD). At 4.91% of the IYC ETF, the position in Home Depot represents the second largest holding, and based on technical analysis, the company's chart is one of the strongest found anywhere in the public markets.
As you can see below, the bulls were able to push the price above the combined resistance of a horizontal trendline and its 200-day moving average. This type of price action is particularly noteworthy for active traders because it represents a shift in the underlying sentiment and now brings the September high of $214.15 into play. With a relatively tight stop loss set below $187.73, the risk-to-reward setup is clearly in the favor of the bulls.
While there are a lot of competing names in the media space, there are few that are doing it better than Netflix, Inc. (NFLX). Taking a look at the chart below, you can see that the price is currently trading within a clearly defined range, as shown by the dotted trendlines. These levels will undoubtedly be used by followers of technical analysis as guides for future trades. For those willing to take risk, the bullish price action in the rest of the sector could be used as a leading indicator that is pointing to a breakout in the near future. Several consecutive closes above the nearby trendline would likely act as a catalyst for a sharp move higher.
The Bottom Line
While the consumer services sector is one of the most under-followed segments in the market, the chart patterns shown above suggest that it is one worth owning. The leaders from within the sector are top holdings of the IYC ETF and are also household names. The nature of the products is something that most average investors understand and feel comfortable with, which is another reason that a wide range of investors could be interested in buying into the group over the days or weeks ahead.
The clearly identified levels of support and resistance on the charts above could be used as strategic guides for determining the placement of buy and stop orders as well as target prices.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.