Entering XLP (Consumer Staples)

While the market has continued to grind higher over the past few months, the Staples sector has been chopping and creating a tightening price action. We have been seeing them test the upper consolidation range recently and this morning the group has broken significantly to the upside.

XLP has the look of a continuation "flag" type pattern in play here, with significant upside potential from here. Many of the biggest names in the sector have been churning and working off the big early gains they saw this year. This setup today suggests they may be ready to continue that upward trajectory.

As always we will be cognizant of the downside risks as well. Initially I am looking at a breakout failure around the $39.50 level. It is possible that an invalidation could occur before that point, but we will just have to see how that develops going forward. But as of now we will use that prior low as our stop.   

Daily Chart

Weekly Chart

Our signals have lined up on both time frames; We are seeing a breakout above the prior highs, upturning 20 WMA, and RS breakout from a 6 month downtrend. This looks pretty textbook here and as always we will take our signal and worry about the results later.


Something interesting of note about the Staples and we have touched on this before, they tend to outperform while the market struggles or consolidates. In fact I have seen a few of the more defensive groups gain a little steam over the past couple weeks and considering that the market has moved quickly higher recently, these signals could be seen as a sign of weakness to come. Now, that doesn't mean the rally is over or anything, but it does show that money managers are wanting to put money to work somewhere and are feeling that some of the more extended offensive groups are too expensive up here. Therefore they are aiming to the more risk adverse names that pay healthy dividends, but still wanting to participate in market upside.