The Wall of Worry Could Send This Sector Higher

This essay was originally published in DailyWealth Trader, a daily trading advisory, and has been adapted. To learn more about this service, click here.

The Wall of Worry is healthy for a bull market...

It means not every investor has shown up to the party yet. And it means that prices will likely go higher after a pullback happens.

We're seeing this play out in one U.S. sector right now. It's in a strong uptrend. Yet folks don't want anything to do with it.

They're worried that some new boogeyman is going to knock it off its course. And that usually means higher prices are on the way...

If the Wall of Worry is a new idea to you, it's simple. It comes from an old Wall Street saying... "Stocks climb a Wall of Worry."

In short, fear in the thick of a bull run is healthy. Folks will try to find reasons for why the current rally won't last.

Every bump in the road feels like the next crash to them. So we get short-term dips in the market when investor fear jumps. But the crash folks are waiting on doesn't show... and the bull run continues.

This is happening right now in consumer-staples stocks. First, let's look at just how fearful investors are of this space.

We can see it through the Consumer Staples Select Sector SPDR Fund (XLP). Thanks to the fund's structure, it can create or liquidate shares on investor demand.

The share count goes up when demand for XLP rises. And it falls when people get fearful or lose interest. That makes it a great gauge of investor sentiment.

Right now, XLP's shares outstanding are near the lowest level we've seen since 2022. Check it out...

Investors have been bailing on XLP since late May 2023. Shares outstanding are down 23% over that period.

This is where things get interesting...

The fund bottomed in October. But shares outstanding are still down 18%. At the same time, XLP is up 17% from its late 2023 low. And it's in a strong uptrend.

The 200-day moving average (200-DMA) for XLP proves it. This moving average is how we gauge long-term trends in a stock or sector.

The moving average is the trend. So if the 200-DMA is rising, we know the trend is up. We also love to see when a sector is trading above its rising trend line. That's an indication that we're in a strong bull run.

XLP checks both of those boxes today...

XLP's trend line started inching higher in March. And it's still rising today, despite XLP facing its first pullback of 2024. The stock fell 4% in the first half of April. And it has yet to regain all of that drop.

Now, we could still see the fund sink further before the next leg higher. But with sentiment so bearish on consumer staples, and a strong trend based on the 200-DMA, it likely won't last long.

In short, the Wall of Worry is good for this boom. And it means higher prices are likely – both throughout the market and in this sector.

Good investing,

Chris Igou

Further Reading

U.S. stocks recently fell too far, too fast. And many investors have become bearish as a result. But according to history, we're likely past the worst of the pain. So don't let the Wall of Worry keep you on the sidelines as the market rebounds... Learn more here.

The demand for electricity is growing at an incredible rate as technologies advance. And that's good news for one "boring" yet vital sector. In fact, a powerful investing tool just turned bullish on this space... Read more here.