Traders seeking safety are running into the consumer staples sector. And that’s giving uptrend lovers plenty of consumer stocks to buy. Today we’ll offer up a few of the top contenders.
The market carnage continued last week giving investors little to be thankful for. Friday’s close marked the lowest closing price for the S&P 500 since May and places it officially 10% off the highs. But while many uptrends are now smashed and shattered, a select few remain resilient. The lion’s share of stocks holding firm reside in the consumer staples space, which sector rotation aficionados contend is a defensive sector.
Simply put, it tends to outperform during times of turmoil. Consumer stocks’ tendency to rise more or fall less is due in part to their low beta and business models that are less economically sensitive than, say, technology stocks.
Here are three of the best looking setups for the week ahead.
Proctor & Gamble (PG)
Proctor & Gamble (NYSE:PG) enters the week a stone’s throw from record highs. Its latest ascent was spurred by October’s rousing quarterly report which beat expectations and sent the stock up by almost 10% overnight. Such a rapid gain is extremely rare for a stodgy old consumer stock and illustrates just how solid its fundamental footings are right now.
Last week’s retreat ushered PG stock back to its rising 20-day moving average and marked the first time spectators have had a bona-fide buy-the-dip opportunity after the earnings jump. This morning’s market rally led by tech stocks and other offensive sectors is taking the wind out of the sails of safety plays. But, I suspect the weakness in PG will ultimately prove a buying opportunity.
Options traders might sell the Jan $90/$85 bull put spread for $1.27.
Some of the most recognizable consumer stocks are from the beverage industry. And Coca-Cola (NYSE:KO) is arguably the king. KO stock barely budged during the initial phases of the market correction, and it has since gone on to make new highs. Like PG, the fresh gains for Coca-Cola were born of an earnings beat.
The post-earnings buying bonanza created extreme overbought conditions that begged for a pause. That pause arrived last week via a multi-day pullback to the rising 20-day moving average. Traders now have a lower-risk entry to deploy bullish trades.
Option traders might buy the Jan $48 call for $1.50.
On the price action front, Pepsi (NYSE:PEP) is the messiest of today’s trio. Nonetheless, it has made strides over the past six weeks and now finds itself above every major moving average. Furthermore, it popped to a new nine-month high showing more newfound strength that qualified it for today’s gallery.
PEP stock’s behavior over the past few weeks has mirrored Coca-Cola. I find its pullback to the rising 20-day moving average particularly interesting. Watch for signs of buying interest this week, such as PEP breaking back above a prior day’s high, to signal that the next ascent has begun.
Options traders could buy the Jan $115/$120 bull call spread for $2.00.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.