5 Reasons to Like Consumer Staples

Consumer Staples are that sector that your parents invest in. Steady companies, with 50 year old products. Boring stuff like bleach, Cheerios, diapers, toilet paper. Not very exciting and definitely not a fast growing set of companies. But these companies have loyal followings of consumers, no matter what the economic environment. Think about it. Which recession did you not use toilet paper or eat breakfast?

Because of that their sales are often very predictable and therefore their management can squeak out a very efficiently made product. That brings money to the bottom line and gets put out to Mom and Dad as dividends. Old people like consumer staples stocks because of the dividend income stream. Or that is how the story goes. But the chart of the consumer staples ETF ($XLP) below shows why this is a sector that you may want to buy into as well. There are at least 5 positive features that suggest this sector is primed to move higher right now.

The first two are from the price action itself. The price of the ETF had been trending lower from a high in July against falling resistance. That changed 3 weeks ago when it moved over that resistance. It has since come back from a touch at its 200 day SMA, but is making a higher low. The price action since October shows an Inverted Head and Shoulders pattern. This triggered two weeks ago and give a target to at least 55. Looking left there is substantial prior trading activity at 55 which could certainly stall it there. The pullback under blue neckline is of no consequence, as price would need to fall under the January low to negate the pattern.

Next are the momentum indicators. The RSI has been making higher lows in the bullish zone and is rising. The MACD is trending higher and about to cross up again. The Bollinger Bands® are turned higher as well. A move and close over the 200 day SMA at about 53 would solidify the case for buying now. But things are lining up for a rise.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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