Hey Tackle Traders,
Around this of time year, I like most families would be taking advantage of the last days of summer by hitting the amusement parks, taking one last trip to the beach or local pools then shut it down with a family cookout or gathering of some sort. Dreading every moment of the cold days ahead, the ultimate tell-tale sign of summer coming to an end flashes on your TV screen; Back to school commercials! If you are a parent with school-age kids you’d find yourself at the stores buying clothing and the never-ending school supplies list. This year things are a bit different for a lot of parents as the majority of the school districts decided to start the school year with virtual learning and keep the kids at home. I know I’m not on an island by myself when it comes to wanting to make money from the companies you spend money on especially when that spending is going to set you back a few pennies. In the past during back to school season knowing that every consumer myself included would be flocking to the stores to buy small and big-ticket items for their kids, I’ve had my eye on certain retail stocks and ETF’s for a potential play. The question this season is the drive to make such purchases happening or is back to school shopping no longer a thing? With the pandemic still looming and millions unemployed should I write off a play at the retail sector play this year or not?
Let us explore and see what we discover. Now when we’re talking consumer spending we can list a bunch of companies a mile long consumers are likely to spend their dollar so let’s keep it simple and look at ETFs rather than individual companies. The two I have in mind or XLP and XLY but I’m going to throw in XRT. These EFT’s holdings have companies you will recognize and likely to have used their products or services. Below are a quick description and list of their top holdings. You can find a list of all their holding on many online platforms or in TOS under fundamentals which is in the analyze tab.
The Consumer Staples Select Sector SPDR invests in companies that are primarily involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products, and personal products. There are 33 companies in the Consumer Staples Select Sector SPDR.
The Consumer Discretionary Select Sector SPDR invests in industries such as automobiles and components, consumer durables, apparel, hotels, restaurants, leisure, media, and retailing. There are 61 companies in the Consumer Discretionary Select Sector SPDR
This ETF offers exposure to the U.S. retail industry, a targeted sub-sector of the consumer discretionary space that may have appeal for investors looking to bet on increased consumer consumption in the domestic market. There are 82 companies in XRT. 12 in Consumer Staples and 70 in Consumer Discretionary.
Now that we have a general idea of what these ETFs hold, the next step is to look at the charts and determine your market posture of whether they are bullish, bearish, or neutral.
Well looking at these three charts, the one thing they all have in common is that they hit their all-time highs this week. Next is to rank your bias. If your bias is bullish, well how bullish are you? We categorize our bias a +1 mildly bullish, +2 moderately bullish, and +3 aggressively bullish. Once you have ranked your bias, it makes it easier to determine a trading strategy. Example:
- Mildly Bullish (1): Covered Call, Short Put, Bull Put
- Moderately Bullish (2): Bull Call
- Aggressively Bullish (3): Long Call
After that, it’s all about waiting for the technical set up for entry. Position size accordingly, set your stop loss and profit-taking targets, and boom you are all set.
So I guess the argument can be made that even though the majority of consumers didn’t flock the stores to buy pencils, crayons and that first day of school outfit, people are spending money on other things such as electronics and items needed for these new learning environments for kids and investors have been eating up “the stay at home stocks” of the market with companies like AMZN, PG, HD, WMT, COST, DG among them, it’s no surprise that the ETF’s holding such companies will do well.
Ladies join me tonight as we will continue this discussion in the Women In Trading Webinar at 8:30 pm est.
Until next time Traders!
Emily Muiruri was born and raised in Nairobi, Kenya before her family moved to the US and settled in Maryland, Emily began her trading journey in January 2015 after 17 years of Property Management in the Self-Storage Industry. Like many new traders, Emily started off with directional trading strategies such as long calls, long puts and very little in cash flow strategies. Over time that has changed and now her core trading strategies are cash flow based such as are Covered Calls, Naked Puts, and Iron Condors. Though she is still a student learning and enhancing her trading skills, she has a strong desire to teach women to take control of their finances and become traders. Writing blogs is one of the ways she’s is looking to spread the word and get more women involved. Emily knows that with the right education and trading system women can be successful traders.
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