Charts Suggest Consumer Staples Sector Is Headed Higher

The consumer goods sector comprises companies that derive their income from the sale of products to individuals and households instead of manufacturers or other businesses. In the current market environment, consumers are trying to ensure that their spending money stretches as far as possible, so many are turning to brand names that they know and trust from large online, bulk, or discount retailers. In this article, we look at several charts that highlight this prominent theme and how followers of technical analysis will be positioning themselves over the weeks and months ahead.

Consumer Staples Select Sector SPDR Fund (XLP)

Active traders interested in gaining exposure to niche sectors such as consumer staples often turn to exchange-traded products such as the Consumer Staples Select Sector SPDR Fund (XLP). Fundamentally, the fund comprises 32 holdings spanning segments such as retailing, household products, and food and beverage products.

Looking at the chart below, you can see that the rising price over the past couple of months has been strong enough to trigger a bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle). This long-term buy signal, known as the golden cross, is often used by traders to mark the beginning of a major uptrend. The recent pullback toward the newfound level of support will most likely be used as a buying opportunity, and many will likely protect against further selling by placing stop-loss orders below $60.03.

The Procter & Gamble Company (PG)

With a weighting of 17.70% of the XLP fund's holdings, The Procter & Gamble Company (PG) represents the top holding. As P&G is the market-leading maker of top household product brands, active traders often turn to the chart of the stock for clues on where the rest of the sector could be headed over the weeks ahead.

As you can see below, the recent crossover between the long-term moving averages looks remarkably like the one shown on the chart of XLP. This technical buy signal will likely capture the attention of traders, and many will look to buy as close to current levels as possible because of the support from the dotted trendline and the 50-day moving average. Traders will most likely maintain a bullish outlook on the stock until the price closes below the longer-term support of the 200-day moving average, which is currently trading at $121.77.

Walmart Inc. (WMT)

Another top holding of the XLP ETF that will likely capture the attention of the active trader community over the days ahead is Walmart Inc. (WMT). The chart of Walmart is of particular attention to traders because the step-like pattern and bounce from the 50-day moving average suggest that the bulls are in control of the momentum and will look to profit on a continued move higher. From a risk-management perspective, traders will likely maintain a bias to the upside and place stop-loss orders below one of the identified support levels, depending on risk tolerance and outlook.

The Bottom Line

Based on key charts used by many to track the consumer goods sector, as discussed above, it appears as though nearby support levels put the current risk/reward scenario clearly in the favor of the bulls. Traders will most likely look to use the recent pullback as an opportunity to buy near influential support levels and place stop-losses closely below in case of a sudden shift in fundamentals or market sentiment.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.