Monday, January 09, 2017

Consumer Staples (XLP) Is In Bearish Country, But Bollinger Bands Tell Of A Big Move

My call back at the end of November for a "long/buy" on Consumer Staples ETF XLP was a great one, albeit quite risky. We were in bearish territory at the time while underneath the 144 day moving average and the equity plummeting just two days later, but curiously making what appears to be a double bottom shortly thereafter. Currently we still find ourselves in bearish country but with the shorter term EMA's bullishly aligned and not far below 144 moving average. We've also come up to resistance on the upper channel line, so what's next? Today's pullback we came to support right at the EMA(34) and with no breakout above the resistance line in sight. Additionally, the Bollinger Bands are pinching meaning a big move is coming, but which way? The momentum is saying 'down' with the earliest support around $51.15, but were the bottoms put in mid-November and early December really bottoms? I'm not sure this could go further below $49.60, but what worries me about XLP's current configuration is it's proximity to the overhead resistance line and the pinching in the bands. Please have really tight stops for this trade with any move above $52.18 turning this into a "long/buy," but for now the obvious signs are "short/sell." The election rally may be finally running out of steam but a further move down tomorrow will seal this signal.