Consumer Staples Are About To Run
Dragonfly Capital | Dec 13, 2016 11:36AM ET
Consumer staples have been a workhorse for the market since the depths of the financial crisis. These are the stocks of the things you need and use every day: cereal, toilet paper, toothpaste, laundry detergent. While many of these companies are very low margin, their business is steady. They also tend to pay good dividends. Nothing exciting.
But in investing, exciting is not what you look for. A steady rise in price over time with dividends along the way can be a home run. For example, $1,000 invested in Clorox (NYSE:CLX), the bleach company, 25 years ago has grown to $2,380 if you reinvested the dividends along the way. That's better than 9% return every year for 25 years -- for bleach! You would probably do well just buying the consumer staples ETF XLP and sitting on it for a few years. The chart below suggests that now may be a good time to buy the ETF.
The chart shows XLP since it crossed over its 100-week moving average in October 2009. The first thing that jumps out is how that 100-week SMA has acted as support ever since. Starting with the touch in 2010, every time since it has touched that line, the price has rebounded. You can also see that the price does not stray too far from that line before a correction -- either through a pullback or sideways through time.
It so happens that XLP's price just started a move up off of that 100-week SMA again. It is now sitting just above it with improving momentum. The RSI at the top of the chart is running higher toward the bullish zone and the MACD is headed toward a cross up, which is a buy signal. It's as if this ETF is on sale. The last thing to note is the falling trend resistance. A push over this line would give confirmation that a move higher has begun and is not just another short-term bounce. An intermediate-term trader might wait for that. A long-term holder should see the value now.
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