Investors woke to a handful of bullish narratives jamming stock futures to the moon. But the opening gap is fading fast, and sellers are reasserting their dominance. With the gains unwinding, I’m looking at bearish trade ideas in consumer staples stocks. The sector has been lagging, and many of its holdings are on the brink of breaking support.
Here’s a plausible explanation for why staples are falling out of favor. The past few months have seen risk-taking behavior return. The economy is reopening and optimism surrounding the country’s ability to bounceback has buoyed stock prices. In an environment where traders are favoring the types of companies that benefit most from commerce and travel returning to normal, consumer staples stocks get left out in the cold.
Of course, nailing the narrative is less important than properly following the price action. And the message from the chart of the Consumer Staples SPDR (NYSEARCA:XLP) is one of relative weakness and underperformance. That, more than anything, is the driving force behind today’s trade ideas.
Here are my three favorite stocks to sell in the sector.
Let’s take a closer look.
Consumer Staples Stocks to Sell: PepsiCo (PEP)
To preface my commentary on PepsiCo shares, I’ll admit I’m not usually a fan of going bearish on popular dividend stocks. The income stream makes buying fundamentally sound companies like PepsiCo at a discount a smart idea. This is one reason why I wouldn’t overstay your welcome and short the stock. If you capture profits, protect them and don’t be afraid to exit swiftly if PEP stock rebounds.
Last Thursday’s monster red candle put the stock on my bear list. It pulled the consumer staples stock below all major moving averages and placed it on the brink of a support break. Monday’s rebound delayed the rollover, but I think PEP is still worth watching to the short side. If it can break below $128, there’s a lot of room to run before the next floor comes into play.
Rather than selling stock outright, we could use options to structure a bearish-leaning bet. I’d wait for a break of today’s low ($130.12) before pulling the trigger.
The Trade: Buy the Jul $130/$125 put vertical spread for around $1.50.
Hershey Co (HSY)
Last week’s drop returned the chocolate king to a price level that’s become critical support. And with HSY stock submerged beneath all moving averages, it seems likely that the floor will ultimately fail. It’s the same price as PespiCo that needs to be taken out before the party starts for sellers — $128.
Monday’s rally pulled Hershey back from the brink, but I suspect it’s only a matter of time before we break through. The past two months of movement have created a descending triangle pattern. The series of lower pivot highs confirm bears are gaining power. But, the equal pivot lows prove they’re not yet powerful enough to turn the daily trend lower fully.
Watch for a push below Monday’s low of $126 as the signal to deploy trades. Consider buying the Aug $125/$120 put vertical spread when the time comes.
Campbell Soup Company (CPB)
The final consumer staples stock for sellers to consider is Campbell Soup Company. Its price chart is the messiest of the bunch. The sideways trend has been crisscrossing through every moving average for the past six months. That makes these smoothing mechanisms less helpful than usual. That said, if we break the $47 support zone that today’s trade idea is based on, then we will sit below all of them.
Since mid-May, multiple lower pivot highs have formed, suggesting sellers are growing in power. That, coupled with last week’s drop to support and the overall weakness in consumer staples, had me eyeing CPB stock for a breakdown play.
This one might require some patience. It’s most attractive as a bear play if we can push below $47. When that happens, I like buying put spreads such as the Aug $47/$43 play.
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