Sunday, October 12, 2014

XLP Consumer Staples Weekly Chart Overbot Rising Wedge Negative Divergence

Can you imagine a world without food, soap, laundry detergent, toothpaste, shaving cream, personal hygiene products or toilet paper? Nope. That is why during difficult market and economic times traders will flock to the perceived safer and more defensive stocks such as consumer staples, blue-chip dividend stocks, REIT's and utilities. All held up well through the selling action over the last couple weeks. CL, PG and CLX are examples of consumer staples. No matter what the economy is doing everyone has to brush their teeth, wash their clothes and wipe their behind. PG is the go-to grand daddy of consumer staples and long traders seeking perceived safety were tripping over each other to buy Proctor and Gamble painting a rosy picture for staples; but looks may be deceiving.

XLP is an ETF for playing the consumers staples sector. XLP will tend to hold up and do well in weak economic times as XLY consumer discretionary stocks weaken. In good times, like the rally over the last few years as the wealthy, made wealthier by the Fed policies that goose the stock market higher, spend more so luxury stocks jump higher such as KORS, KATE, TIF and so forth (XLY is strong and XLP is weak). The interplay of XLY and XLP is a great indicator of overall economic health.

Aunt Edna just took her entire life savings and invested it in consumer staples stocks such as XLP and PG because the pundits on television told her that was the smartest path forward. The chart above is nasty. Folks running towards consumer staples thinking they are playing defense and will be better protected if the stock market falls further, are actually running into a buzzsaw. The Fed, BOJ and other central bankers have destroyed all price discovery in markets. No one knows what any asset is truly worth anymore. Economic cycles are distorted. Typically, the consumer staples would be in the cellar now so as the economy stalls and the stock market potentially rolls over for a more cyclical bear pattern for months or a year or two, the smart move is to go into the staples. Not for this cycle. The Fed intervention twists markets into knots. There is no safety in consumer staples this time around.

The overbot conditions, rising wedge pattern and negative divergence (red lines) paint a bleak picture forward. Last week's candlestick is a doji which indicates a potential trend change so this week watch to see if there is follow-through to the downside. The money flow is receiving some VST love due to the thrust of money running into staples for the perceived safety. This may boost price a bit more over the coming days or week or three. The MACD line cross is dead flat with the lines having to make an important decision for a negative or positive cross tomorrow (purple circles). That will tell you the VST direction. The ADX continues to trail lower as new price highs occur indicating that the strength of the upside trend in staples is fading away.

The volume perks up over the last two weeks as traders, thinking they are smarter than other traders, cash-out of stocks they have raped to the upside courtesy of the Fed, and buy staples with both hands. They will likely have their heads handed to them on a platter. The robust volume is still unable to overtake the high volume days of June and late July. Price will likely seek these areas again to see if volume can improve to verify the orgy of upside now occurring.

Projection is for price to top out at anytime over the next month and move sideways to sideways lower for the foreseeable future. Remember, the collapses from rising wedges can be quite dramatic. Folks seeking safety and not paying attention may easily find their trade at XLP 46 down at 43 in a heartbeat and then far lower. Another test of the 20-week MA at 44.69 should be a given in the near term. The chart is very ominous but watch to see if the orgy of upside buying can create more lift in the VST before it all collapses say within the next month or two. There is a lot of momo to the index and considering the interest in consumer staples may only increase over the next few weeks, price may move flat for a month or two before the inevitable downside occurs. In and through 2015, it will not be surprising to see XLP trade in the 38-43 zone. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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