The Coming Break Out in Consumer Staples

• Posted by Greg Harmon
• on December 13th, 2016

Consumer Staples have been a workhorse of the market since the depths of the financial crisis. These are the stocks of the things you need and use every day: cereal, toilet paper, toothpaste, laundry detergent. Many of these companies are very low margin and businesses but steady. They also tend to pay good dividends. Nothing exciting.

But in investing exciting is not what you look for. A steady rise in price over time with dividends along the way can be a home run. For example, $1,000 invested in Clorox, the bleach company, 25 years ago has grown to $2,380 if you reinvested the dividends along the way. That is better than 9% return every year for 25 years! For bleach! Do I have your attention now. You would probably do well just to buy the Consumer Staples ETF ($XLP) at any point and hide it away for a few years. But the chart below suggest that now is an opportunity.

The chart above shows the Consumer Staples ETF since it crossed over its 100 week moving average in October 2009. The first thing that jumps out is how that 100 week SMA has acted as support ever since. Starting with the touch in 2010, every time since it has touched that line the price has rebounded. You can also see that the price does not stray too far from that line before a correction, either through a pullback or sideways through time, brings it back to it.

It so happens that the price of the ETF has just started a move up off of that 100 week SMA again. It is now sitting just above it with improving momentum. The RSI at the top of the chart is running higher towards the bullish zone and the MACD is headed toward a cross up, a buy signal. It is like you went to the grocery store and this ETF was on sale. The last thing to note is the falling trend resistance. A push over this line would give confirmation that a move higher has begun and it is not just another bounce short term. An intermediate term trader might wait for that. A long term holder should see the value now.

Take advantage of the Holiday Sale here!

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