Staples performance against discretionary needs to correctThe rate at which staples had outperformed discretionary in this market correction calls for a short term bounce for discretionary against staples.
XLP trade ideas
short term bottom for marketXLP traded positively against XLY and reached the trendline from the carry trade unwind. Looks to be time for the market to go back to risk on for a while and therefore a short term bottom for S&P
SHORT XLPI am bearish overall especially below the 50% Fib. But I have to give the bulls a chance. If they can fill the gap and then take the fib then off they go.
But realistically we fill the gap, maybe bounce and reject again and or just keep dropping. Slow grind I would presume so take a long leap position.
I will scale into short positions over Q1 & Q2 of this year.
XLP vs SPY: Staples vs SPYConsumer staples vs SPY is at historical lows on the monthly chart. Last time it touched multi year low, then we saw a multi-year Bull market from 2000-2007. XLP had a fantastic bull run against the indexes like SPY and QQQs during the Great Financial Crisis (GFC) and reached ATH during 2009. Since then, the XLP has been bleeding against the S&P 500. It tried to reclaim the high in 2026 but suffered failed top. Since 2016 the ratio has been in a bear market and makes lower lows and lower highs. Recently it broke the multi-year low and is making lower lows. Weakness in Staples indicates a risk on trade in favor of the momentum indices like SPY and QQQ.
Staples...can they do it this time?AMEX:XLP is at a major location where it has had quite a few fake breakouts on weekly
this time , however it has consolidated for quite a few weeks below that level...so might have power to hold...
staple names also reporting and should benefit from the lower inflation numbers (margins will improve)
defensive sector, can compliment the XLV also
XLP - consumer staples signaling possible upward reversalAMEX:XLP regained its YTD and MTD anchored volume weighted average price, as well as the VWAP anchored to the 3/21/24 FOMC meeting. Momentum is turning sharply upward and most major moving averages are in a productive relationship to one another and price.
Additionally, XLP/SPX is showing a potential reversal toward relative strength. It's crossed above the MA for the weekly Bollinger band, has the longest streak of growing volume, and has broken out of a declining rate of change.
XLP Potential Breakout on Consumer Staples Sector $XLPXLP Potential Breakout Analysis
AMEX:XLP is showing signs of a potential breakout based on technical analysis. This could present a favorable opportunity to consider investing in the Consumer Staples sector.
Why Consumer Staples Sector?
The Consumer Staples sector is known for its stability and resilience during market fluctuations, making it an attractive option for investors looking for a defensive position. These companies produce essential goods that people need regardless of economic conditions, providing steady demand and consistent performance.
Interesting Companies in the Consumer Staples Sector:
Procter & Gamble ( NYSE:PG ): A multinational consumer goods company with a diverse portfolio of products ranging from household essentials to personal care items. Its strong brand presence and global reach make it a reliable choice for long-term investors.
Coca-Cola ( NYSE:KO ): A leading beverage company known for its iconic brands like Coca-Cola, Sprite, and Fanta. With a focus on innovation and expanding into new markets, Coca-Cola remains a solid pick in the consumer staples industry.
Colgate-Palmolive ( NYSE:CL ): A well-established company specializing in oral care, personal care, and household products. Colgate-Palmolive has a history of consistent growth and brand loyalty, making it a dependable investment option.
Investing in these companies within the Consumer Staples sector could provide a balance of stability and potential growth opportunities. Keep an eye on AMEX:XLP for further developments to capitalize on the potential breakout.
XLP Weekly ChartConsumer staples sector, or in other words the companies we shop from on a daily. EX: COSTCO, WALMART, TARGET. This chart is prefect, this level is just so clear to see. We have multiple touches of this resistance/supply level, and we had one false breakout back in April 2022. How many times can a level be tested before it decides to breakout? We are back at this level once again, my guess is we actually break this time and move on from this level.
MACRO MONDAY 28 ~ Discretionary Index Vs Staples IndexMacro Monday 28 – Discretionary Vs Staples
Today we are going to look at the following two very interesting SPDR Indexes and their relationship to one another to help us understand where the U.S. consumer is at present.
SPDR Select Sector Funds (“SPDE SSF”)
1. Consumer Discretionary SPDR Fund AMEX:XLY
2. Consumer Staples SPDR Fund AMEX:XLP
For reference the SPDR (AKA the Spider) is a short form name for a “Standard & Poor's Depository Receipt”, an exchange-traded fund (ETF) managed by State Street Global Advisors that tracks the Standard & Poor's 500 index CBOE:SPX
What are Discretionary Expenses?
Discretionary expenses are defined as “a cost that a business or household can survive without, if necessary”. These are the nonessentials like meals at restaurants, entertainment costs, vacations and 50” flat screen TV’s.
What’s in the SPDR Consumer Discretionary Index?
The SPDR Consumer Discretionary Index seeks to provide focused exposure to companies that provide discretionary nonessential services or produces such as hotels, restaurants and leisure; textiles, apparel and luxury goods; household durables; automobiles; automobile components; distributors; leisure products; and diversified consumer services.
The SPDR Consumer Discretionary Index top 10 holdings are:
1. Amazon 22.62%
2. Tesla 17.76%
3. McDonalds 4.63%
4. Home Depot 4.58%
5. Nike 3.80%
6. Lowes Cos 3.70%
7. Booking 3.62%
8. Starbucks Corp 3.24%
9. TJX Companies 3.22%
10. Chipotle 1.85%
Now we understand exactly what the SPDR Consumer Discretionary Index is and what its main components are. We know that the index itself is driven by stock prices from a collection of companies that offer discretionary services and products in the U.S.
Now lets have a look at the SPDR Consumer Discretionary Chart
Chart 1 – SPDR Consumer Discretionary - AMEX:XLY
At a glance the chart demonstrates the following:
▫️ In December 2007 price fell below the 200 Week Moving Average (WMA) which coincided with the exact date the Great Financial Crisis commenced (from Dec 2007 – June 2009).
▫️ Interestingly price got back above the 200 WMA in February 2010, 8 months after the recession had ended.
▫️ Since 2009 Consumer Discretionary spending appears to be in a general up trend with a lot of volatility in recent years however still in an uptrend.
▫️ The 200 WMA is still rising and sloping upwards, and price is now back above it which indicates strength.
▫️ Recently we made a potential lower higher and this is something we should look to confirm over the coming months. Should we break higher this would be obviously bullish, another lower high and we know to be cautious.
▫️ In the event we breach the 200 WMA, we should start to get more cautious. This has occurred twice since 2020 and price got back above the 200 WMA however we are very aware that a breach of the 200 WMA can signal a recession as it did so accurately in Dec 2007.
▫️ If we fall below the “INITIAL SUPPORT” marked on the chart, consider this an initial serious warning.
▫️ If we breach the “MUST HOLD SUPPORT” this would be extremely bearish.
- you will see that volatility to the downside on Consumer Discretionary can be quiet something in our comparison charts below. It is worth noting the level of increased volatility since 2018 on the chart. We have not really seen anything like it before dating back to 1998.
Lets move onto the Consumer Staples and see what they are, what they consist of and what the chart is telling us here.
What are Staples?
The term consumer staples refers to a set of essential products used by consumers. This category includes things like foods and beverages, household goods, and hygiene products as well as alcohol and tobacco. These goods are those products that people are unable—or unwilling—to cut out of their budgets regardless of their financial situation.
What’s in the SPDR Consumer Staples Index?
The SPDR Consumer Staples Index seeks to provide a focused exposure to companies that providing consumer staples distribution & retail; household products; food products; beverages; tobacco; and personal care products industries in the U.S.
The SPDR Consumer Staples Index top 10 holding are:
1. Proctor & Gamble 14.11%
2. Costco Wholesale 11.56%
3. Pepsico 9.49%
4. Coca Cola 9.36%
5. Philip Morris Int 4.54%
6. Walmart 4.53%
7. Mondelez Int 4.47%
8. Altria Group 3.40%
9. Colgate Palmolive 3.06%
10. Target 3.00%
We now know exactly what the SPDR Consumer Staples Index is and what its main components are. We know that the index itself is driven by stock prices from a collection of companies that offer Consumer Staple services and products in the U.S. Products/services people cannot do without, products they need day to day.
Now lets have a look at the Chart
Chart 2 – SPDR Consumer Staples Index AMEX:XLP
At a glance the chart demonstrates the following:
▫️ The high in Consumer Staples in Dec 2007 coincided with the beginning of the Great Financial Crisis. In Chart 1 above on Consumer Discretionary we seen that a breach of the 200 WMA coincided with Dec 2007 GFC. Both charts demonstrated some synchronicity in advising caution from Dec 2007 forward.
▫️ Nine months later in Sept 2008 a lower high formed in Staples and after that the lower support line was lost following which capitulation occurred. I have marked up a similar “MUST HOLD SUPPORT” line for the current price structure. We have made a lower high similar to 2008. A breach above that lower high would be bullish, continued lower highs would indicate weakness.
▫️ Since 2009 Consumer Staples still appear to be in a general up trend with increased volatility in recent years however still in an uptrend.
▫️ The 200 WMA is still rising and sloping upwards, and price is now back above it now again which indicates strength.
▫️ All the same levels are apparent here as above in Chart 1. The 200 WMA, the “INITIAL SUPPORT” and the “MUST HOLD SUPPORT”.
Now that we are familiar with the charts, their price history, the important levels to watch and some synchronicities, lets have a look at how these charts compare when you line them up together on the same scale.
Chart 3 – Discretionary versus Staples
SUBJECT CHART AT TOP OF ARTICLE
We will take three main things away from this chart:
1. The big obvious finding on the chart is just the extent at which the Consumer Discretionary Index (orange) has risen above Consumer Staples(blue). This wide gap between the orange and blue lines is really stark and it appears it may be starting to close.
2. Historically Consumer Discretionary (orange) revisits and falls lower than Consumer Staples (Blue), particularly during recessions. We have a long way to go for this to happen again. See Chart 1 and Chart 2 above for important support levels to watch (for both).
3. Consumer Discretionary (Orange) started to make a series of lower highs prior to the Great Financial Crisis (see black arrow on chart), something similar may be occurring now. We are also already aware that Consumer Discretionary fell below the 200 WMA in exactly December 2007 which was the first month of the Great Financial Crisis. This is also the exact date when Consumer Staples topped in 2007. At present Consumer Staples made a top in April 2022 and Consumer Discretionary made a potential lower high in Dec 2023, however it has not fallen below and remained below the 200 WMA (making this a key line in the sand to watch going forward).
Chart 4 – The Relative Strength of Consumer Discretionary
In this chart I just wanted to illustrate the relative strength of the Consumer Discretionary over the Consumer Staples over the longer term. You can create this chart by inserting XLY/XLP into TradingView.
As you can see this chart has been trending up and to the right since 2008. Discretionary spending appears to be on a long term uptrend and this is worth noting as a long term potential shift towards spending on services, experiences and higher end electronics. Technology Index’s in prior Macro Mondays are showing strength and we have to consider that if we do not breach the important support levels marked in Chart 1 and Chart 2 above, we may have a secular shift in spending habits towards discretionary (until support levels are broken). Granted this may be the least probable and least accepted view given recession fears, liquidity concerns and the yield curve un-inversion likely to occur in 2024. We do however need to keep an open mind, a COVID-19 type event might bring us down to the bottom trend line only to bounce off it after another stimulus hits the market. If we lost that lower support line, we can say unequivocally that the secular trend of discretionary spending strength is over.
We now have a two more Indexes to watch that give us a good idea of the impact consumer spending is having on companies in the marketplace. We have our levels to watch and a good understanding of the risks and potential trends. Use it wisely.
All my charts are on TradingView and you can revisit them at any time and press play to see have we breached any important levels to the upside or downside.
Thanks for reading.
PUKA
Party is over when we enter the yellow boxIn the past, when xlp/spx wicks down and touches the channel lows, the markets have hit a top.
Keep an eye on this one!
XLP - give me some value for winter and spring monthsThe chart and fundamentals are too easy here, right? What am I missing?
Consumer Staples have been hit hard and I would own most of these companies during any time period. However, the market gave us a gift and it should be easy to capitalize. Going long here on pure fundamentals. On a technical basis, the chart looks good but keeping my eye on crossing the 200 day SMA. If it does cross, probably buy some calls to further capitalize.
On a related note, Wal-Mart looks good on the recent dip.
consumer stapes looks interestingout of rotation and would be a profitable sector to start adding into
Introduction to Relative Strength Part 3In parts one and two (linked) we discussed the construction and use of relative strength ratios (RS) in trading and analysis, common errors, and best practice. In part three we look at the consumer discretionary to consumer staples ratio and attempt to draw trading and economic insight from that analysis.
Any method used to analyze a single security price chart can be used to analyze ratios. I tend to use simple methods and I do not require the same precision in terms of retracements and support/resistance that I would use when analyzing or trading a single security.
Consumer Discretionary (XLY) / Consumer Staples (XLP):
I generally think about this ratio in two ways. The first, and for my purposes, the most important, it reflects the markets judgement around the strength of the economy. When the economy is improving, as it has over the last few months, the ratio should weaken (which it has done). This is because as discretionary income rises, confident consumers are more likely to spend on non-essentials or staples. When they are less confident, they spend less on non-essential discretionary and more on staples. It is important to remember that consumption is around 70% of GDP. For economic or macro analysis, I prefer to use monthly perspective charts.
I believe that the long outperformance of discretionary relative to staples is mostly due to the massive liquidity added to the system since the great financial crisis. The liquidity that has aided consumers and thus the economy in general. As liquidity normalizes and the economy slows, staples should begin to outperform discretionary.
The second is creating a tradable spread. Creating proportional spreads (see part two) between two sector ETF's, expressing trades that overweight or underweight specific sectors inside a portfolio, or creating pairs trades using names within the two sectors are all legitimate uses of ratios. When creating pairs trades inside a sector my preference is to use each sectors market largest capitalization names (market generals) as they are less vulnerable to idiosyncratic risk. I also prefer to pair names with similar businesses. For instance, I would not pair Walmart (staples) with Tesla (discretionarily) but would consider Walmart or Costco verses Amazon.
One final thought, profitable spread trades can be structured using either highly positive or negatively correlated pairs. What fails to work consistently are spreads with spurious correlation.
Chart 1 TOP: Monthly Consumer Discretionary (XLY) in ratio to Consumer Staples (XLP): Top Panel: Close line charts for both ETFs.
Since XLY on the left scale trades at over two times the price level of XLP (172 verses 72), XLP has been compressed in order to easily compare the paths of the two symbols. Clearly both staples and discretionary have significant positive long-term correlation as they follow the larger market higher and lower. The high degree of correlation suggests that the two markets can be generally expected to trend together, but at varying rates depending on the consumer/economic outlook. It is the difference in the rates of change that creates the profit or loss.
Monthly: Technically, the ratio topped in October 2008 and since 2011 has trended lower in a well-defined channel. That channel was broken in March 2022 as inflation exploded higher and the Federal Reserve began to tighten monetary policy (both actions hurt discretionary spending).
Over the last few months, as the outlook improved and the economic narrative changed to soft landing, the ratio has again turned lower and is now testing the area of the broken trendline that defined the broad down sloping channel.
MACD momentum remains on a sell signal. In this perspective, I view the chart at an important juncture from which a sign of either strength or weakness is likely to define the trend for the next year.
Weekly Detail: Note the narrow Bollinger band and the turn higher over the last few weeks. A break above the lateral resistance coupled with a break of the downtrend would strongly suggest that staples are likely to outperform over coming months.
As a last step, I like to examine the raw bar charts on both sides of the spread. In this case, like the general market, both look weak. Discretionary is retreating from the top of its range while staples are resting at good support. The concern here would be that a breakdown from a long range of distribution would likely generate significant selling and imply significantly lower lows.
Conclusion: I suspect that the spread is in the process of bottoming and that, as the economy weakens over the next few months, staples will outperform. But, overt proof of a turn higher is lacking. While the recent hook higher is promising, it needs to move above the overhead resistance. If it does, odds become very good that the economy is weakening and that staples will enter a significant cycle of outperformance.
And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Taylor Financial Communications
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur
Yield-Sensitive Sectors Steamrolled, Eyeing TLTDefensive-value niches of the S&P 500 were not all that cheap back in the summer of 2022. Consumer Staples traded with a forward operating P/E north of 20 while the uninspiring and often-safe Utilities space briefly had an earnings multiple above 22. Real Estate, meanwhile, has endured steep absolute and relative selling over the last many quarters as the ramifications of COVID's reshaping of the work environment continue to evolve.
I took a look at those three sector ETFs (XLP, XLU, XLRE) and plotted price action on the iShares 20+ Year Treasury ETF (TLT). The "long bond" sports a yield of just under 5%, and you'll find that TLT's yield-to-maturity is higher than that given its exposure to the 20-year bond (which almost always has a yield premium to the more liquid 30-year). The result of sharp Treasury-market selling since May, and particularly since the beginning of the Q2 earnings season in mid-July, is that so-called "defensive" sectors have been big losers.
I assert that if we see yields pare their gains into year-end, then the usual mid-October through early January rally could be led by this island of misfit sectors. Consider that the 5% mark on the yield curve is a key psychological level - I would not be surprised to see bond buyers step in over the next handful of weeks. All bets are off next year, though, as it appears a longer-term cycle of higher yields is in place.
XLP - Staples are lagging the market XLP has had horrific downside price action over the last several weeks.
As it approaches the Weekly 200 MA I do anticipate a bounce to occur.
Not many sectors are near the weekly 200 MA.
Buying this at the Weekly 200 MA has proven to be a great long term entry for investors.
If a bounce occurs and bearish consolidation on the weekly chart occurs, this sector will likely be a good short side play.
I would never short this sector now since its had a big decline. A bounce is more favourable at this point.
Introduction to Relative Strength or Ratio 1-1This is part one of a series on relative strength ratios.
Part One:
Relative Strength Ratio (RS) analysis is used to compare one markets performance with that of another. The RS line provides a direct comparison of strength or weakness relative to the another. RS analysis is particularly useful for active institutional managers who are judged relative to a benchmark as opposed to individual investors who are constrained by producing an absolute return. But understanding ratios opens a world of spread or pairs trading and provides valuable insight into the market environment. To be clear, the relative strength ratio has nothing to do with Welles Wilders Relative Strength Index (RSI). RSI is a momentum oscillator designed to evaluate a single security as opposed to a ratio comparing one security to another.
Using ratio analysis, bonds can be compared to equities, commodities to bonds, domestic equities to global equities, gold to copper, country to country, currency to currency, industry sector to industry sector, specific companies or sectors to broader indices, country to country and even individual equities. Choices of pairs are extensive. Importantly, once charted, the RS line can be analyzed as any other security. Support and resistance, channels, and momentum indicators can all be applied to the RS line. With literally thousands of securities to be compared the limits of RS analysis is only limited by the imagination of the analyst. The analyst does need to be careful. There needs to be a clear and intuitive economic linkage between the two securities before setting up ratio charts. There can also be issues when two securities, despite having a clear linkage, have a dynamic third variable such as currency translation or large differences in duration such as the LQD/HYG example that we will cover in future parts.
Relative Strength is calculated by dividing one security's price by a second security's price (the "base" security). The result of this division is the ratio, or relationship, between the two securities. When the RS line is rising, the numerator (top) security is outperforming the denominator (bottom) security. When the numerator security is falling, the numerator is underperforming the denominator security. If the RS is moving laterally, there is no performance advantage to either the numerator or denominator.
When looking at spreads I mostly prefer to use the ratio rather than the net price difference between two markets. Using ratios allows the analyst to make comparisons between markets priced in different units. For instance, Oil and Gold or cotton and the CRB. One exception to this would be when directly comparing one ratio to another ratio. In this case both ratios need to be normalized to a common starting value (I use 100) to adjust for large differences in numerators that could skew the RS line higher or lower relative to the RS line.
I find ratios most useful over longer time perspectives for business and economic insight. However, many traders/investors use them in shorter time perspectives as they create spread trades or aggressively switch between sectors. When I was actively trading bond/note futures I used extremes and technical analysis of the RS line on the hourly chart to help manage my curve trades.
In this series we will explore the construction of relative strength ratios, their best use, and make technical evaluations of several ratios and what that analysis implies.
And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Taylor Financial Communications
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
Consumer Staples XLP looking weakStaples price action has been sub par as of late with bearish consolidation occurring. This sector looks very fragile and I'm watching individual names for continued weakness.
XLP Staples (daily chart outlook)XLP has based around it's POC, which is a high volume apex. It has retraced 50% from B to C, and another 50% from C to D, along a low volume node. Furthermore, the Relative Rotation is showing staples in the improving quadrant on the daily, although it is still in the lagging quadrant on the weekly (www.relativerotationgraphs.com).
Always looking for additions to the portfolio (long holds), I will be scouting for some prospects -- but only if insanely cheap with sound financials........
XLP - Horizontal Trend Channel- XLP is within an approximate horizontal trend channel in the medium long term.
- A break upwards will be a positive signal, while a break downwards will be a negative signal.
- The price has broken the resistance at 77.23 of an an inverse head and shoulders formation.
- Decisive breaks of such formations are considered strong signals of further rise.
- The stock has marginally broken up through resistance at 77.30.
- Volume tops and volume bottoms correspond badly with tops and bottoms in the price.
- RSI above 70 shows that the stock has strong positive momentum in the short term.
- The RSI curve shows a rising trend, which is an early signal of a possible trend reversal upwards for the price as well.
- Overall assessed as technically positive for the medium long term.
*EP: Enter Price, SL: Support, TP: Take Profit, CL: Cut Loss, TF: Time Frame, RST: Resistance, RTS: Resistance to be Support LT TP: Long Term Target Price
*Chart Pattern
DT - Double Top | BEARISH | RED
DB - Double Bottom | BULLISH | GREEN
HNS - Head & Shoulder | BEARISH | RED
REC - Rectangle | BLUE
iHNS - inverse head & Shoulder | BULLISH | GREEN
Verify it first and believe later.
WavePoint ❤️
discretionary to staple spendimg has reached a zentithwe are at a point where the use of credit to purchase staples has outpaced the use of cash to purchase other goods. the expense of debt in discretionary goods has reached an inflection point with the expense of transaction in basic supplies. the chart is at a high. the sell signal is in. count on the cost of goods being relatively cheaper, and that being bad for sales. bearish for broader market.
consumer staples about to take a hitand rally in discretionary over staples is going to be met with selling. this is the santa rally that never came.
Market remains very defensiveConsumer Staples continue to strongly outperform Consumer Discretionary. Growth stocks remain quite bearish. Value continues to outperform.
