Thursday, January 22, 2015
XLP Consumer Staples Weekly Charts Overbot Rising Wedge Negative Divergence Price Extended
Traders are tripping over each other to buy consumer staples stocks thinking they will be protected if any stock market selloff occurs plus at the same time enjoy dividend income. These are not your grandfather's markets. The Fed and other central bankers have completely distorted price discovery over the last six years and destroyed the economic cycle. Typically, staples such as PG are a great place to go when the economy starts to falter and leak south, however, the obscene Keynesian money printing has created new asset bubbles across the board sending all stocks higher. All that matters to traders is easy money. The central bankers are the market. With the never ending fountain of liquidity, traders rape the upside in the stock market those that own stocks become wealthier and those that do not become poorer.
The interesting thing about the current multi-year topping action in the stock market is that all asset classes are bloated so there is really no safe place to hide except cash. Those looking for safety and protection from a stock market selling event are rushing into utility and staple stocks. They are only covering themselves with a fig leaf. Staples, utilities and all sectors will sell off in any market downturn.
The longer term chart shows how QE1 in March 2009 definitely started the six-year rally. XLP is up from 16 to 50, a triple, +190%. Easy money is powerful. The weekly chart shows the overbot conditions, red rising wedge, current hanging man candlestick that indicates a trend change although it needs to finish the week for its final look and negative divergence (red lines) indicating a top at hand or very near. The brown dots show the price extended above the moving averages requiring mean reversions. Price needs to come back to the 20 MA at a minimum.
The pink standard deviation lines show price violating the upper band two different times so the middle band at 47.17 (same as 20 MA) is in play and perhaps lower band at 43.54 and rising. The MACD line, stochastics and money flow (green lines) are trying to squeeze out the last drops of juice but the expectation would only be for a jog move, down, back up, then down, over the next couple weeks. The chart is setting up very negatively and there appears to be a multi-year top forming. The XLP monthly chart has negatively diverged indicators except for the MACD line so the projection would be for XLP to jog for a week or two at 49-50, then down to 46-48 into early February. XLP would then recover to satisfy the MACD on the monthly chart and come back up for another look at 49-50, then roll over for weeks and months of downside, potentially a year or two. More simply, XLY would be expected to print a multi-year top anytime now through March.
There is no safety in utilities and staples. Those running into these sectors are running into a buzzsaw. We now live in a new modern-day era of central banker controlled markets. The game only continues as long as traders remain confident in the central banks. The ECB decision announcing QE is only an hour away. Will global traders remain confident in the central bankers? 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.