Have these key $XLP names hit an inflection point?

Consumer Staples – A Brief History

During 2015 – 2016, investors piled into many consumer staple names in a vicious search for yield.  During this time, the $XLP outperformed $SPX. The out-performance peaked in February 2016 and has been under performing on a relative basis ever since. Beginning in late May / early June, the sector became oversold and had what I believe is a sharp snap back rally.

Where are we now?
The chart below shows the relative performance of XLP vs SPY. You can easily see the relative performance is back to the downtrend line that has been firmly in place for over a year. I question if XLP has the horsepower to break through.

Drilling down on some names

Yesterday an option trade piqued my interest. A whale came after Kraft Heinz with in the money  Aug 65 Puts 3500x +  paying $3.70 ask.  Overall, PUT volume was 4x that of CALL.

That got me digging into the big XLP names. There are quite a number  of big names that have key characteristics that give them a bearish set up.

  • A sharp rally from oversold conditions to approximately a 38.2% Fib level ( more or less )
  • Still under their 200dma
  • RSI backing off of elevated levels
  • PPO momentum showing bearish crossovers.
  • Relative performance vs both SPY and XLP itself have turned down.

Charts of Hershey’s and Kraft Heinz Illustrate the point

Names for further study
You will find the charts of these names showing many of the characteristics of those above.

General Conclusion
IMO the downtrend in relative performance of XLP persists and the move over the last 6-8 weeks was an oversold bounce.  Being earnings season, most of these names report in the next few weeks. Keep that in mind when contemplating any potential trades.

Thanks for reading; hope it helps

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