(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Consumer Staple stocks have been one of the worst performing sectors in the S&P 500 so far in 2018, as measured by the iShares Consumer Staples Select Sector SPDR (XLP), trading lower by 12.5%. But more pain may be on the way for the group based on technical analysis of the charts. The ETF may drop by over 5% in the coming weeks. 

Colgate-Palmolive Co. (CL), Walgreens Boots Alliance, Inc. (WBA) and Costco Wholesale Corp. (COST) may decline by 7% or more based on weak technical charts. 

Consumer Staples 

The Consumer Staples ETF chart suggests the group may be moving lower by 5% to $47.25 to a price not seen since 2016. The formation in the chart is a bearish continuation pattern called a bear flag. The relative strength index (RSI) has also been very weak and has been unable to garner any real momentum since reaching overbought levels at the beginning of January, with the level rising above 70. Additionally, volume has been weak and has struggled to rise above its three-month average daily volume consistently. 

Walgreens

Walgreen's stock chart has a descending triangle pattern—a bearish continuation pattern—with technical support at $62. Should the stock fall below technical support, as the pattern would suggest, the stock may fall towards $58.60, a drop of about 7%. The stock's RSI shows no clear trend, while volume levels have steadily declined since April, which are both bearish indicators. (For more, see also: Walgreens Struggle Despite Being a Healthcare Hub.) 

Colgate

Colgate's stock sits at a critical technical support level of $61.50, and should it break support, the stock could drop to prices not seen since 2013. Shares could drop to $55.50, a decline of about 11%. The RSI in Colgate continues to trade lower, while volume levels continue to fall implying that momentum is exiting the stock. Shares of Colgate aren't even cheap when considering shares trade at 18 times 2019 earnings estimates that are forecast to grow by 7.5% to $3.39 per share. 

 

 

Costco

Costco's stock is in a danger zone as well, with the stock failing to rise above technical resistance at around $200 after multiple attempts. It may result in the stock falling back to its longer-term uptrend of around $175, a decline of 12%. The RSI trend has been lower since peaking in late 2017 at 83, well above an overbought reading of 70. Costco's stock is no bargain either, trading at 25.8 times 2019 earnings estimates which are forecast to grow by about 12% to $7.68 per share. (For more, see also: How Costco's Stock Can Soar on E-Commerce.)

The technical charts suggest there is more pain ahead for some of these consumer staples, and in some cases, valuations may still be too high.  

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.