Just Charts: XLP Screens Bullish, Wk 2

Consumer Staples markedly outperformed the broader market last week, falling -0.2% versus the S&P500 at -2.0%. And for a second week, the XLP is bullish on immediate term TRADE and intermediate term TREND durations from a quantitative set-up. This is a material shift as the sector traded bearish TRADE and TREND for the majority of the year-to-date.

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The Hedgeye U.S. Consumption Model is also showing improvement, with 6 of the 12 metrics flashing green.


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Despite an improved outlook for the sector, we continue to believe that the group is facing numerous headwinds, including:

  • U.S. consumption growth is slowing as inflation rises, in-line with the Macro team’s 1Q14 theme of #InflationAccelerating
  • The economies and currencies of the emerging market – once the sector’s greatest growth engine – remain weak with the prospect of higher inflation in 2014 eroding real growth
  • The sector is loaded with a premium valuation (P/E of 19.2x)
  • Less sector Yield Chasing as Fed continues its tapering program
  • The high frequency Bloomberg weekly U.S. Consumer Comfort Index has not seen any real improvement over the past 6 months, but expanded to -27.6 versus -28.5 in the prior week

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There will be a number of consumer staples companies presenting at CAGE today – March 19th. Click here for the program

Our Best Idea in the sector remains Lorillard (LO). Please email me at if you’d like a copy of the presentation and to listen to the podcast from March 4th.   

Matt Hedrick

Food, Beverage, Tobacco, and Alcohol

Howard Penney

Household Products

(o)

Quantitative Setup

In the charts below we look at the largest companies by market cap in the Consumer Staples space from both a quantitative perspective and fundamental aspect where we can offer one.  As you will see over time, sometimes our fundamental view does not align with the quantitative setup (though not often).



BUD – I’ll have another round of bearish BUD beta please! Didn’t take much for this stock to revert squarely back into its Bearish Formation @Hedgeye – TREND resistance = $102.79
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DEO – looks worse than BUD, but both are bearish TREND @Hedgeye with DEO’s TREND resistance firmly intact up at $126.82
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KO – only rallied when the market did, then failed @Hedgeye TREND resistance ($39.58) as the market failed to make new highs
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PEP – looks better than KO primarily because its trading above TREND support of $80.41, albeit barely
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GIS – big correction on a big volume signal late last week; watch TREND support of $49.31 very closely
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MDLZ – still bullish TREND @Hedgeye as long as $33.62 holds
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KMB – still the best looking quantitative setup on this list. We call this a Bullish Formation as it continues to signal a series of higher-lows and higher-highs with TREND support down at $105.95
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PG – having a tough time challenging TREND resistance of $80.56; if it continues to fail there, we’ll remain bearish
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MO – making a serious comeback from the FEB lows; we call this a bearish to bullish TREND reversal @Hedgeye with what was TREND resistance now support at $35.66
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PM – still the dog breath setup of the group; looks nothing like MO as its well below its $83.05 TREND resistance line
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