The consumer staples sector is generally regarded as one of the largest barometers of a nation's economic health and comprises nearly 70% of gross national product. In case you did not know, companies in this sector specialize in selling essential products such as food, beverages and various household items. They are generally regarded as being non-cyclical due to the inelastic nature of the products. In this article, we'll take a look at several key charts from within the consumer staples sector and try to determine how active traders will look to position themselves over the months ahead. (For further reading on this topic, check out: A Guide to Investing in Consumer Staples.)
One of the most popular exchange-traded funds (ETFs) that is used by investors for gaining exposure to the consumer staples sector is the Consumer Staples Select Sector SPDR Fund. Fundamentally, this fund comprises 32 holdings, has total net assets of nearly $9.5 billion and carries a reasonable expense ratio of 0.13%. Taking a look at the chart, you can see that the price has managed to move above the resistance of the 200-day moving average (red line). Technically, one of the most interesting things about this chart is how the bulls were able to prevent the price of the fund from falling back below that level on the sell-off in early August.
The bounce, as shown by the blue circle, was enough to trigger a move higher, which caused the 50-day moving average to cross above the 200-day moving average. This popular buy sign is known as the golden crossover and is used by traders to mark the beginning of a long-term uptrend. Based on the pattern, traders will likely maintain a bullish outlook on consumer staples for the remainder of 2018 and are likely to set their target prices near the 2018 high of $58.17. Stop-loss orders will likely be placed below the moving averages in case of a sudden shift in fundamentals. (For more, check out: Cyclical Versus Non-Cyclical Stocks.)
One of the world leaders when it comes to successful consumer staples companies is Procter & Gamble. With 23 billion-dollar brands, P&G is no stranger to success and holds the number one or two positions in nearly all categories or segments in which it competes. Taking a look at the chart, you can see that the recent move higher has caused the 50-day moving average to cross over the 200-day moving average in a similar manner as the one shown on the chart of XLP. This crossover suggests that the bulls are in clear control of the momentum, and many active traders will likely look to add positions near current levels to take advantage of the lucrative risk-to-reward ratio. Again, stop-losses will likely be placed below the long-term moving averages, which are hovering around $80 and $81. (For more, see: Consumer Staples Sector: Industries Snapshot.)
Another popular name in the consumer staples segment is Coca-Cola. Taking a look at the chart, you'll notice that the 50-day moving average crossed above the 200-day moving average, sparking the beginning of the long-term uptrend just as discussed above. What makes this chart of specific interest is how the recent pullback found support near the 200-day moving average and was able to bounce higher. The recent surge in momentum has led to a bullish crossover between the moving average convergence divergence (MACD) indicator and its signal line, and it appears as though the price is headed toward the 2018 high of $47.76. (For more, see: 5 Consumer Stocks Ready for Big Rebounds.)
The Bottom Line
Companies within the consumer staples sector tend to get overlooked by many investors because of the non-cyclical nature of the underlying businesses. While the companies don't tend to carry the same glamour as others in sectors such as precious metals, biology or technology, they do tend to be consistent performers. In short, the bullish chart patterns discussed above suggest that now could be the ideal time to buy into consumer staples.
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.