The consumer staples sector has been on a steady rise for the past couple of years, but as 2020 gets underway, some active traders are starting to wonder if the trend can last. In the paragraphs below, we'll take a look at several key charts from across the consumer staples sector that look to be showing early signs of a trend reversal and try to determine how traders will position themselves over the weeks or months ahead.
Consumer Staples Select Sector SPDR Fund (XLP)
Active traders looking to gain targeted exposure to a specific sector often turn to SPDR funds managed by State Street Global Advisors. The fund that is most commonly looked to in the case of the consumer staples sector is the Consumer Staples Select Sector SPDR Fund (XLP). Taking a look at the chart above, you can see that the fund has been trading within defined range since the start of 2019. The converging trendlines suggest that a decisive move is likely in the cards at some point over the next couple of weeks.
Active traders will need to decide whether the price is likely to break above the upper trendline and start the next leg of a move higher or move below the combined support of the lower trendline and the 50-day moving average to signal a further pullback. Based on the spikes in volume that have been occurring when prices fall and the bearish crossover between the moving average convergence divergence (MACD) and its signal line (shown by the blue circle), it appears as though the bias is currently leaning toward the probability of a pullback. Followers of technical analysis will likely set their target prices near the 200-day moving average, which is trading at $58.78.
The Procter & Gamble Company (PG)
When it comes to the consumer staples sector, there are few companies with the market presence of The Procter & Gamble Company (PG). With a market capitalization of over $300 billion, the company has economies of scale that can make it seem nearly impossible to compete against.
The reason that this chart is of specific interest today is that it is the top holding of the XLP ETF and has recently broken below the support of an influential trendline. The move below the ascending trendline shown by the blue circle could be used by active traders as a leading indicator to suggest that the price is headed toward the long-term support of the 200-day moving average. If this stock is headed toward a pullback, it is also prudent to expect a breakdown on the chart of XLP, as mentioned above.
The Coca-Cola Company (KO)
Another major company from within the consumer staples sector that has popped onto the radar of active traders is The Coca-Cola Company (KO). As you can see from the chart below, a horizontal channel pattern has formed over the past six months, and the recent bounce off of the upper trendline suggests that a pullback toward the combined support of the 200-day moving average and lower trendline is imminent. Followers of technical analysis will also likely look to the bearish crossover between the MACD and its signal line as confirmation of the move lower.
The Bottom Line
The consumer staples sector has experienced a strong run over the past year, but the charts of the XLP ETF along with two of its top holdings suggest that a pullback toward long-term support levels could be in the carts. Bullish traders may want to wait on the sidelines for a better risk/reward setup before taking a position.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.