Is The Consumer Staples ETF (XLP) Rally In Jeopardy?

From Dana Lyons: A popular Consumer Staples fund is testing its bull market uptrend.

There have naturally been a lot of big winners among the various sectors during this bull market in stocks. And the gains have accrued in a variety of ways. Some of the biggest gains have been in high-profile, “flashy” sectors — but they’ve also required a lot of Maalox along the way. Other sectors have seen more moderate but steady gains. The consumer staples sector would certainly fall under the latter category.

As measured by the popular Consumer Staples SPDR ETF, ticker, XLP, the sector has tripled since the 2009 low, even before factoring in a solid dividend yield. Perhaps the best characteristic of the bull market in consumer staples, though, has been its steady, low-volatility path. At just about -12%, XLP has experienced the smallest post-2009 maximum drawdown of any of the sectors. This has provided for a relatively smooth ride for consumer staples investors.

Sure, there have been a few hiccups along the way. However, over the past half dozen years, each time the XLP experienced a bit of adversity, it was saved by a rising trendline stemming from its late 2011 lows. The ETF is experiencing one of those hiccups now — and testing the trendline once again near the 53.50 level.

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With the stock market rally hitting on just about all cylinders at the moment, consumer staples is one of the few areas that has not participated. Based on our approach of investing in the relative strength in the market, that would necessarily disqualify XLP. However, taking another view, it is also one of the few places in the market that is not substantially extended currently. If the trendline can hold again (potential Fibonacci support also lies just below ~52.78), this may be one of the few favorable risk/reward opportunities in the immediate-term.

The Consumer Staples Select Sector SPDR ETF (XLP) fell $0.23 (-0.42%) in premarket trading Wednesday. Year-to-date, XLP has gained 6.04%, versus a 14.96% rise in the benchmark S&P 500 index during the same period.

XLP currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #26 of 40 ETFs in the Consumer-Focused ETFs category.


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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.

This article is brought to you courtesy of Dana Lyons, JLFMI and My401kPro.