Staples ETFs Still Have Problems

February 7th at 8:00am by Todd Shriber

Consumer staples stocks and exchange traded funds have been favorite hiding places for investors during previous periods of market tumult.

That has not been the case this year. Even with Thursday’s 1.1% gain, the Consumer Staples Select Sector SPDR (NYSEArca: XLP) is down 4.4% this year, more than double the loss of the allegedly higher beta Technology Select Sector SPDR (NYSEArca: XLK). Dow component Procter & Gamble (NYSE: PG) has been outperformed by fellow Dow member J.P. Morgan Chase (NYSEArca: JPM). [Selective With Staples ETFs]

XLP and rival staples ETFs also reside below their 50- and 200-day moving averages, indicating work needs to be done before these funds can again be considered bullish ideas. A look at the charts shows the near-term prognosis is not encouraging.

Referencing a weekly candlestick chart, Eagle Bay Capital President J.C. Parets highlights a false breakout for XLP in the fourth quarter of 2013.

“Once that breakout failed, the fast move down has been relentless. But to make matters worse, with that brief high, momentum (measured using a 14-period RSI) was putting in a bearish divergence by not confirming. Meanwhile, relative strength was also not confirming as staples relative to the S&P500 were also rolling over. Not good,” said Parets.

Parets also points out the direction of XLP’s 50- and 200-day moving averages is far from pleasant.

“In this case both the 50 and 200 day are trying to rolling over and trend lower. This alone, at the very least, tells us that staples will have a hard time sparking a sustainable rally here,” he said.

XLP’s top-10 holdings, which combine for almost 64% of the ETF’s weight, include Warren Buffett favorites Procter & Gamble, Coca-Cola (NYSE: CO) and Wal-Mart (NYSE: WMT) as well as Philip Morris (NYSE: MO), PepsiCo (NYSE: PEP) and Altria (NYSE: MO). [Coke, Green Mountain Lift This Staples ETF]

The 10-pack below shows none of these stocks are in good shape with regards to their moving averages. Several members of XLP’s top-10 lineup have made a death cross, the scenario where a shorter-term moving average, in this case 50 days, moves below a longer-term moving average like the 200-day. (Click to Enlarge)

Tom Lydon’s clients own shares of Coca-Cola and Procter & Gamble.

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