Several U.S. sectors have taken a dive in recent weeks...
The Nasdaq entered a correction earlier this month. A number of other stocks have taken a beating. But one specific sector's pullback has gone too far.
You see, this sector fell sharply to end February. It hit oversold levels for the first time since March 2020.
Now, it's starting to bounce back. So while this is typically a boring sector, history says if you buy now – given the setup in place – you could earn double-digit profits.
Let me explain...
When a stock moves too far, too fast in a given direction, a bounce back is likely. That's why we call the situation "oversold."
These signals work as lines in the sand to see when a stock has gotten ahead of itself. And they highlight potential buying opportunities. We can use the relative strength index ("RSI") to see this at work...
When a stock falls below and rises back above an RSI of 30 – triggering oversold levels – a snapback in the other direction is likely.
That's exactly what we are seeing in the boring consumer staples sector today.
This sector holds companies like Procter & Gamble, Walmart, and Coca-Cola. They're great businesses, no doubt. But it's not the most exciting area of the market.
That doesn't matter though. The Consumer Staples Select Sector SPDR Fund (XLP) recently hit oversold territory. Take a look...
The new signal triggered on March 1. It was an extremely rare move – setups like this have happened just 1% of the time since 1999.
Plus, it marks a buying opportunity for investors. Similar setups have led to significant outperformance over the next year. Check it out...
XLP has returned roughly 4% in a typical year since its inception in 1999. That's not a sexy return in the grand scheme of things. But buying after an instance like today's turns out much better...
Similar oversold cases have led to more than 3% gains in three months, 5% gains in six months, and roughly a 10% gain over the next year.
That's much better than a simple buy-and-hold strategy. And it means this boring sector has a chance of delivering double-digit gains.
XLP has already reversed course since the start of the month. But there's still plenty of upside potential left over the next year.
You might think of these as boring companies... But buying them at the right time can mean solid profits. That time is now. History shows XLP is a good opportunity today.
Good investing,
Chris Igou
Further Reading
When the trend turns around for a specific sector, it can spell big gains for investors. And recently, this sector has erased all the losses it experienced during the pandemic lockdown last year... Learn more here.
U.S. stocks have been setting new records. But that isn't the case everywhere around the world. In fact, this market only recently broke through its decade-old all-time high. And that could spell even more upside from here... Read more here.
While consumer staples will likely head higher, one U.S. sector could fall sharply in the short term. And it could mean double-digit losses for investors caught in the downturn...
MORE PROOF THAT ONLINE SHOPPING IS A LIFELINE TODAY
Today, we're looking at another retailer that's riding the e-commerce trend...
Regular readers know that COVID-19 has accelerated the "death of retail." Many brick-and-mortar stores that were already struggling to keep up with the e-commerce boom have had to close their doors forever... while those that moved their businesses online have weathered the pandemic. Take today's company, for example...
Columbia Sportswear (COLM) is one of the world's largest outdoor and active lifestyle retailers. It sells everything from outdoor apparel and footwear to camping and hiking supplies. Like many other retailers, COVID-19 was hard on Columbia's in-person stores, with direct-to-customer sales falling 13% last year. However, Columbia was able to offset that decline by focusing on its e-commerce business... The company's online sales grew a stellar 39% year over year in 2020.
As you can see in today's chart, COLM shares are on a steady climb higher. They're up roughly 90% over the past year and recently hit a new all-time high. As online shopping continues to dominate the retail industry, companies like Columbia are adapting to stay afloat...
