Saturday, March 10, 2007

Where's The Flow? XLP And Consumer Staples Stocks

Well, we're doing a pretty good job of winding our way through the major market sectors within the S&P 500 Index universe. To this point we've looked at Adjusted Relative Dollar Volume Flow among the materials, energy, technology, financial, and consumer discretionary sectors, as well as the S&P index overall. Now we ask the WTF question about consumer staples stocks. That sector is represented by the XLP Spyder sector ETF. As with the other sectors, I've chosen five stocks that dominate the ETF to assess dollar flows: PG, MO, WMT, KO, and WAG.

As with the other sectors, the blue line represents the price of the XLP ETF going back to January, 2004. The pink line captures the 10-day average of dollar flows among the five stocks. When that line is above the horizontal red line at the zero level, it tells us that flows are above average compared with their 200 day average. When the pink line is below the zero level, it tells us that dollar flows into the consumer staples issues are subnormal.

We can see that a surge of dollar volume flowed into the consumer staples stocks in September, 2006--a pattern similar to what we saw among the consumer discretionary issues. We can also see the lower peaks in dollar flows leading to the price high in February, 2007--a pattern noted among the other sectors. Also as with those other sectors, we can see that negative values for the Adjusted Relative Dollar Volume Flows have represented intermediate-term buying opportunities among the consumer staples shares.

Observe, however, that--even in the wake of the recent market decline--we have yet to see subnormal flows into the sector. In other words, large market participants are not bailing out of this sector, even during the significant market drop. Although 7 of the last 10 trading sessions have shown subnormal dollar flows, these have been only very modestly below average--and the positive days have been well above average. We don't yet see significant dollar flows going into the staples, but--on a relative basis--they, along with the materials and consumer discretionary stocks, have weathered the decline well. A reasonable hypothesis is that investors have been less aggressive in selling defensive market sectors during the recent period of risk aversion.