In reviewing the charts of various stocks & sectors shortly before the close, I had noticed that the utilities sector ETF (XLU) was trading positive on the day as well as TLT (long-term Treasury Bond ETF), an indication that institutions are pulling money out of tech & rotating into defensive sectors & asset classes. That prompted me to check the charts of XLP (consumer staples ETF) as well as some of the top components of that defensive sector ETF.
XLP daily 2 March 22nd
Normally, entries for official trade ideas are published well in advance of the market close or as trade setups, with entries to be triggered on a pre-determined price level or trendline breakout. In the case of XLP, I wanted to get the trade idea out before the close, which I just managed to do by a couple of minutes, in order to allow for anyone interested to take a position if they like idea of going long a relatively low-risk sector that has the potential to outperform the broad market in the coming weeks to months, should we see a continued rotation out of growth stocks & sectors like technology, biotech, etc. with some of those funds moving into defensive sectors & safe haven assets like treasury bonds.
XLP 60-min March 22nd
As a popular, widely-held ETF, XLP trades fairly actively in the after-hours trading session with relatively tight spreads. As I type, XLP is trading at 51.45 x 51.52 so one could enter an order to buy at, say, 51.50 or so, and have a good chance of getting filled at the same level XLP closed at today. The price targets for this trade are T1 at 52.87 & T2 at 54.59. The suggested stop (calculated using an R/R of roughly 3:1 if targeting T2) is any move below 50.45. The suggested beta-adjusted position size for this trade will be 1.0.
A few other considerations on this trade are the fact that a long position in an oversold, defensive sector like consumer staples meshes with my preference to not only strive to keep a balance of both long & short trade ideas on the site at most points in time but also to provide for various sectors & assets classes with little to no correlation such as stocks, bonds & commodities, in order to allow for both active traders as well as longer-term investors the tools to help build a diversified, all-weather portfolio.
The gain potential for this trade, assuming that it is not stopped out first, is minimal compared with the majority of trade ideas posted on RSOTC & depending on how the charts of both XLP & the broad market develop in the coming days & weeks, I may decide to revised T1 to the final target instead of T2. If so, that would result in a rather paltry gain of less than 3% but as there is a large subset of traders & investors that do not have the desire or comfort level to short stocks & ETFs, I’m passing this along as one of the more attractive sectors within the S&P 500 for a long-side trade at this time. As with any trade idea shared here, pass if this one does not mesh with your unique trading style, risk tolerance & objectives.