Will the Staples anchor the market?

• Posted by Greg Harmon
• on December 11th, 2015

Consumer staples are thought to be a defensive sector for investors. The thought goes, as the economy fades people will always need things like food and toilet paper. That has expanded recently to go beyond the economy and into the strength of the stock market. So staples are now thought of as a place to hide when there is risk in the market.

Even though the stock markets are within 5% of their all-time highs every sneeze this past year has been viewed as a future case of Ebola for the market. So with that backdrop the current sell off (in a range) when many were hoping for a Santa Claus rally has investors and trading running for cover. So what is happening with those staples?

The chart above shows that since the beginning of the year the Consumer Staples ETF ($XLP) has moved in a very tight range between 48 and 50. It did spend some time below when the market fell hard in August and has also drifted above on the last two run ups. But after the long trend higher this is clearly a shift of trend to flat.

The big question now is will this shift again to a trend lower. Sentiment is currently against it. And you should not dismiss the possible impact of that. But there are other things in the chart that suggest the story does not have an answer yet. The SMA’s on the longer timeframe are continuing higher and there are no Death Crosses looming.

The momentum indicators are bullish. The RSI is not rising, but is solidly above the 40 level that it would need to break to turn bearish. The MACD is rising and positive, both bullish. The Bollinger Bands®, a measure of volatility have widened, but are still running sideways. So increased volatility but no change in direction.

The Consumer Staples may give insight into the next direction of the market. But for now they continue to be range. It is all noise until they break below 48 or above 50. Go back to your holiday shopping and parties. The staples are anchoring the market for now.

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