XLP Consumer Staples Nearing All Time High

Apr 6, 2010: 12:11 PM CST

File this under “In case you missed it,” the XLP Consumer Staples ETF is knocking on resistance that – if broken – would result in an all-time price high (not just new bear market recovery high).

Surprised?  So was I (especially if you don’t watch this fund actively).

Let’s take a look at the weekly chart spanning the entirety of the recent Bear Market and recovery to (almost) new lifetime highs.

In the Sector Rotation model, consumer staples – things we have to buy/use regardless of economic conditions (like toothpaste, cleaning supplies, etc) – outperform during economic downturns/bear markets and often underperform during economic recoveries/bull markets.

Needless to say, it’s surprising to see staples (XLP) $1.00 away from an all-time high and within pennies of making a new weekly all-time closing high.

The high you see on the chart – which actually was formed in September 2008 before the stock market plunged precipitously (again, staples outperform during recessions or bear markets) was a quick spike high as funds sought protection in staples.

It’s very important to note that Staples peaked in October 2008, and not October 2007 along with the rest of the stock market.  That’s not surprising.

What IS surprising is that Staples (XLP) seems on the verge of making a new lifetime high, exceeding the 2007 and 2008 peaks while the stock market in general is not quite there yet.

As the S&P 500 tests the 1,200 new recovery high level, it’s still roughly 25% below the all-time high of 1,576.

During a strong bull market and economic recovery, one would expect staples to underperform the broader market as funds who were defensive/bearish during the downturn now rotate capital out of staples (protection) and into risk-seeking assets (like technology, financials, retail/discretionary).

As a reference, here are the figures for the ETFs mentioned above in terms of their distance away from their lifetime highs:

XLK Technology: 18.5% away (peaked in November 2007)
XLY Discretionary: 18% away (peaked in July 2007)
XLF Financials: 57% away (peaked in June 2007)

It’s one of those puzzling realities of the current market that needs further analysis/study.

Corey Rosenbloom, CMT
Afraid to Trade.com

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5 Comments

5 Responses to “XLP Consumer Staples Nearing All Time High”

  1. terlyn Says:

    It is interesting, but it is still underperforming SPY.

  2. Corey Rosenbloom, CMT Says:

    True, relative to the March 2009 low, the SPY is up 70% while the XLP is up 40%.

    From the October 2007 stock market peak, the XLP is down less than 1% while the SPY is down 24%.

    In the larger picture, it's outperforming, but since the March '09 low, it's underperforming (as expected).

  3. The Main Sector SPDR ETFs Distance from Recovery Highs | Afraid to Trade.com Blog Says:

    […] Sector SPDR ETFs Distance from Recovery Highs Apr 6, 2010: 3:08 PM CST // In following up from this afternoon’s post, I wanted to show a grid of the main nine AMEX Sector SPDR ETFs distance from the 2007 (or 2008) […]

  4. terlyn Says:

    It is interesting, but it is still underperforming SPY.

  5. Corey Rosenbloom, CMT Says:

    True, relative to the March 2009 low, the SPY is up 70% while the XLP is up 40%.

    From the October 2007 stock market peak, the XLP is down less than 1% while the SPY is down 24%.

    In the larger picture, it's outperforming, but since the March '09 low, it's underperforming (as expected).