Consumer Staples Select Sector SPDR ETF (XLP) + SIA Relative Strength Matrix of XLP Holding

Following significant bounces over the past week, global stock markets have shown mixed performance: the S&P 500 rose by 1.07%, the Dow gained a modest 0.31%, while the Russell 2000 Small Caps declined by 0.75%, reflecting the increased volatility typical of the fall season. With key events such as the U.S. Presidential debate, Consumer Price Index reports, and recent global rate cuts now behind us, attention turns to the upcoming U.S. Federal Reserve interest rate decision on September 18th. Despite recent gains, U.S. indices are showing volatility and a pause in momentum as concerns grow. Industrial commodity prices have retracted but are finding some support, with notable gains in Palladium (up 8.33%) and Copper (up 1.54%). Energy futures are down 1.54%, with Natural Gas rising 5.83% and Crude Oil falling 2.73%, adding to a challenging month. Currency trading remains subdued, and the 10-year Treasury yield has stabilized near 3.70%. Precious metals have seen modest gains, with Gold up 0.65% and Silver up 1.30%, approaching the critical $30 level. As the market awaits further insights from the Federal Reserve, sentiment remains cautious. Mixed economic data and a potentially weakening U.S. dollar suggest a broader rotation towards less risky, interest-sensitive assets. With lower U.S. rates largely anticipated and inflation concerns easing, the focus is increasingly on economic fundamentals. This shift highlights the growing importance of defensive sectors and stocks. Today, we will analyze the relative strength and point-and-figure chart of the Consumer Staples Select Sector SPDR ETF (XLP) and examine its holdings to identify potential opportunities for advisors.

The Consumer Staples sector has been a reliable safe haven as markets have sought value names amidst a sector rotation that began early this summer. The companies in this sector are primarily involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products, and personal products.

The trend toward these household names reflected in the SIA Matrix Reports, which highlights companies like Walmart, Costco, 3M, Colgate-Palmolive, Loblaws, George Weston, and Gildan as top performers in the Favored Green Zones. To explore these opportunities, we’ll examine XLP, a leading ETF in the Consumer Staples sector with 38 companies in its portfolio.The Point and Figure chart for XLP, scaled at 2%, shows a breakout in June at $75.58, with the ETF approaching resistance at $86.82 based on a vertical count of its prior consolidation range. Although this move may appear mature, opportunities still exist within the ETF. As with any broad portfolio, there are leaders, laggards, and average performers. Notably, some stocks that were previously in the Neutral Yellow Zone have since moved to the Favored Green Zone and these fresh entrants provide ideal entry points. XLP carries an SMAX score of 9 out of 10, reflecting its strong relative performance compared to other asset classes. One additional comment is the ultimate height of the opportunity, which shows as upper resistance at $101.73 based on a second vertical count from its 4-year megaphone consolidation base which indicated there is much legs to the rally.

Reviewing the SIA Holding Matrix, Walmart is positioned in the Alpha #1 spot, followed closely by other strong performers. Costco's placement is not surprising, while Kellogg's (now KellaNova) holds the 5th spot, showing significant movement this summer as a safe dependable stock as well as Colgate-Palmolive which recently entered the Favored Zone in early August. While this list includes many strong names, the weaker performers at the bottom are acting as a drag on the XLP ETF. Of course, SIA practitioners are encouraged to focus on top performers in the matrix, which means staying abreast of the RS movers that are charging up the list.

One notable stock currently in the Neutral Yellow Zone of many SIA RS Reports but showing much strength in the SIA Consumer Staples Reports is The Procter & Gamble Company (PG). Despite its position, it shows considerable promise and is the focus of today's Daily Stock Report. While many names on the list are valuable as safe havens in a risk-off environment, careful selection is essential for maximizing returns. Other notable names in this camp are General Mills, Campbell Soup (now Campbell) and The Clorox Company.