Will A Rising Tide of Buying Boost All Retailers?

After a strong start on Monday, shares of the Consumer Staples Select Sector SPDRS ETF (XLP) followed through to the upside by another 1%. In contrast, the Consumer Discretionary Select Sector SPDRS ETF (XLY) added a third of a percent.

The rising tide of buying has certainly lifted all boats, and the consumer sector is no different. But the difference in performance between two components of the consumer retail sector on the day after the big bounce may reflect a market that is still very much anxious and uncertain about the future.

Consumer staples stocks, names like Philip Morris International (PM) and Reynolds American Inc. (RAI), have not only kept pace with consumer discretionary stocks in recent days. Consumer staples stocks also did not become as severely oversold as consumer discretionary stocks did during the last sell-off. This reflects both the greater volatility of the discretionary group, which includes stocks like Best Buy (BBY) and Pier 1 Imports (PIR), on the way down, and a greater appreciation for lower volatility, perhaps, on the way back up.

Whatever their differences, both ETFs are set to open in overbought territory for a second consecutive session when trading begins on Wednesday. In the case of XLP, trading in bull market territory, continued overbought conditions are a prelude to an inevitable pullback that will likely attract buyers. On the other hand, because it is trading below its 200-day moving average as it becomes overbought, shares of XLY could find themselves in the crosshairs of traders looking to sell short-term strength.

Both funds have modest negative edges as of Tuesday’s close. Additional strength will likely increase these negative edges, again, especially in the XLY, which returned to bear market territory shortly after the middle of the month.

Traders may want to also keep an eye on the S&P Retail SPDRS ETF (XRT). Moving essentially sideways in Tuesday’s session, the fund finished just outside of overbought territory and, like XLY and XLP, will take a small negative edge into trading on Wednesday.

All of the stocks and ETFs in today’s report were available from research and data available through PowerRatings. To learn more, click here.

David Penn is Editor in Chief of TradingMarkets.com