The consumer staples sector comprises companies that produce essential products, including food and household items. Globally, market segments such as consumer staples, commodities, and utilities are currently out of favor and replaced by focus on discretionary items such as electronics and autos. In the paragraphs below, we take a closer look at various securities that have strong exposure to the consumer staples sector and try to determine how traders will be positioning themselves over the months ahead.
- The consumer staples sector has fallen out of favor with the bulls, as many traders turn to other segments such as health care and technology.
- However, nearby support levels are suggesting that consumer staples could be the sector to watch over the months ahead.
- Bullish crossovers between the moving average convergence divergence (MACD) indicator and its signal line on many charts across the consumer goods sector could be used by followers of technical analysis as confirmation of a move higher.
iShares Global Consumer Staples ETF (KXI)
Active traders who are interested in gaining exposure to specific sectors often turn to exchange-traded products such as the iShares Global Consumer Staples ETF (KXI). Fundamentally, the XKI ETF is used by traders to express a global sector view and comprises 91 holdings. Looking at the chart below, you can see that the price of the fund has been trading within a period of consolidation since breaking above the 200-day moving average.
Followers of technical analysis will want to note how the 200-day moving average acted as a strong level of support in late October and how the price started to move up again recently when it approached the long-term moving average. Trend traders will likely use the proximity to the long-term moving average and dotted trendline as a guide for determining the placement of buy and stop orders. Traders will also likely want to take note of the bullish crossover between the MACD and its signal line, shown by the blue circle, because it could be used to confirm the start of a new leg higher.
The Coca-Cola Company (KO)
The Coca-Cola Company (KO), with a weighting of 4.56%, represents one of the top holdings of the KXI ETF. From an active trader's perspective, Coca-Cola could be worth a closer look because the price has recently moved toward a significant level of support. Looking at the chart below, you can see that the horizontal trendline and the 200-day moving average have greatly influenced the price of the stock over the past 12 months.
Based on recent price action, it appears that these levels will continue to act as useful guides for determining the placement of buy and stop orders. As discussed in the case of the KXI ETF, the bullish crossover between the MACD and its signal line could be worth noting because it is a common short-term buy signal, which could act as a catalyst for a move higher. Short-term target prices will likely be set near the 2020 highs.
Walmart Inc. (WMT)
Walmart Inc. (WMT) is one of the world's largest sellers of consumer goods and one of the top holdings of the KXI ETF. Looking at the chart below, you can see that the bulls stepped into the stock as the price neared the support of the 200-day moving average.
The bounce from the support levels suggests that the bulls are still in control of the momentum and that prices could be poised to make a move higher over the weeks ahead. From a risk-management perspective, stop-loss orders will most likely be placed below $135.71, in case of a sudden shift in sentiment or company fundamentals.
Consumer staples are considered to be non-cyclical, meaning that they are always in demand, year-round, no matter how well the economy is – or is not – performing. As such, consumer staples are impervious to business cycles. Also, people tend to demand consumer staples at a relatively constant level, regardless of their price.
The Bottom Line
The consumer staples sector is underfollowed when compared to sectors such as technology and health care. However, based on the proximity to major levels of support and well-defined uptrends, it appears as though this sector is well positioned to make a move higher for months to come.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.