Top Charts from the Consumer Staples Sector - 1/12/2024
Sector trends and trade ideas
Our job is to find trends, with the belief that trends are more likely to persist than reverse course.
One of the easiest ways to identify those trends is to look at a stock’s current price and compare it to the level and direction of a moving average of trailing prices. If the current price is above a rising moving average (MA), then prices are in an uptrend. Below a falling MA, a downtrend. Pretty simple, right?
Things are a little more difficult when you get mixed signals: the level says one thing, but the MA trend says another. What if price is above a falling MA? That’s a key first step toward a new uptrend, but it doesn’t always mean prices have bottomed. The same logic holds for a price that’s below a rising MA.
So what do you call it when prices are directly on top of a flat moving average? In this case, we call it Consumer Staples.
The sector is stuck within the middle of a multi-year range and without a trend - there’s simply not much to see.
That is, unless you compare them to the rest of the S&P 500. On a relative basis, the Staples are pretty interesting, as they work on confirming a bullish momentum divergence following a failed breakdown at the 2021 lows. That could spark a mean reversion of outperformance by the Staples.
We’re seeing the same bounce even when we strip out the impact of market cap skew - the equally weighted Staples are finding support vs. the equally weighted S&P 500 at those same 2021 lows.
The most interesting part is when it’s happening. January is supposed to be the worst month of the year for the Consumer Staples sector. In Januarys since 1990, the Staples have underperformed 68% of the time and by an average of 1.3%. So far this year? The Staples are leading by 0.6%.
If the Staples are outperforming in what’s supposed to be the worst month of the year, what’s that say about the underlying strength in the sector? This is a group worth paying attention to.
Grindstone Intelligence is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
Especially the small cap variant. The small cap Consumer Staples sector is threatening to break out of a huge, 5-year cup-and-handle base relative to the large cap sector. The bigger the base, the bigger the resolution.
The PowerShares SmallCap Consumer Staples ETF is already breaking out to new highs. We think it will go to $40.50, which is the 161.8% retracement from the 2021-2023 range.
There are more opportunities beneath the surface.