Is The Massive Volume Spike In Consumer Staples A Tell? (FXG, PM, STZ, WFM, SWY, TSN, SFD)

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March 6, 2012 12:28pm NYSE:FXG

David Gillie:  Ya gotta eat, or so goes the theory of consumer staples as a defensive move against a market decline. There’s certainly some logic in that. People don’t stop brushing their teeth or using band aids or give up soap no matter what the market is doing.  

The market has floated at its highs for a week or so on low volume. I’ve been looking for something inside the market as a “tell”. A massive volume spike in consumer staples this week caught my attention.

First Trust Consumer Staple Alpha (NYSEArca:FXG) is a unique ETF among the consumer staples choices.

As I stated before, “Ya gotta eat” and FXG is a unique consumer staples ETF for its weighting almost exclusively in food. OK, I guess ya gotta smoke too with Philip Morris (NYSE:PM). 

All of the remaining top 10 holdings are food related as well, including retailers such as Whole Foods (NASDAQ:WFM) and Safeway (NYSE:SWY). Incidentally, although Whole Foods is considered the “high end” of the grocery world, they have had a stellar year with stock price performance over 30%. Safeway is one of the largest food retailer in North America. Constellation Brands (NYSE:STZ) produces and markets alcoholic beverages. Some say the worst the economy does, the more booze people drink. That may or may not be true, but it certainly is true that the more they drink “at home” avoiding the high prices in restaurants and bars. Another holding, Tyson Foods (NYSE:TSN), is far more than a chicken company. Tyson produces a wide range of packaged meat products and prepared foods. The same is true for Smithfield Foods (NYSE:SFD). If you eat it, drink it or smoke it, FXG holds it.

A gain of 0.16% may seem paltry over a week when the darlings of the media like Apple make that much in an hour—or when silver shoots up 4% in a day. Well, they also go down that fast. 

FXG has an average true range of 20 cents a day. That may not get your heart pounding, but also won’t give you a heart attack with a mere 0.67% monthly volatility. 

Let’s look at the weekly chart of FXG:

While the media was directing investors’ attention to shiny things, smart money was on the move. This week we saw a 600% spike in volume—the largest ever on this ETF. 

That kind of action gets my attention. The only other weekly volume spike like this immediately preceded the major August selloff last year. Is this a tell of what we might expect ahead in the market? Sure, FXG dropped with the overall market, but nothing to the degree of the S&P500 and Dow. Furthermore, FXG has broken out of ascending wedge pattern to the upside. Normally a bearish pattern, a breakout to the upside is VERY bullish. 

FXG is overbought on the near term on this volume spike, but has room to move in long term strength and trend. Current price is below the 52 week high resistance an hads held the 50 day moving average. 

12% gain last year may not make the headlines, but if all you owned last year was this food ETF, you’d have beaten the market and about 75% of all hedge funds. You can’t eat Gold. You can eat an iPad, but you can eat well with FXG. 

Disclosure: At the time I writing, I have no position in FXG.

Written By David Gillie For The ETF Digest

ETF Digest writes a subscription newsletter focused on technical analysis of exchange-traded funds.  ETF Digest was founded in 2001 and was among the very first to see the  need for a publication that provided individual investors with  information and advice on ETF investing. Even if you’re not a fan of  chart analysis, ETF Digest provides insight and commentary into which global markets are “working” and why.

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