As the broader markets begin to consolidate, traders continue to look for the next big sector rotation. Technology, Financials and Materials have surged since the November 8, 2016 election, but with the market in wait and see mode it appears money is now moving into the Consumer Staple space.
On February 7, late in the trading session there was some unsual call option activity on the XLP Consumer Staple ETF (NYSE:XLP). A purchase of 10,000 February 17 calls were purchased, with the investor looking for further upside in the ETF.
Unusual activity reflects a situation where the current volume is more than 200% larger than the prior volume, and larger than the prior day's open interest, which tells you that this is a new trade. There are some websites such as optionwisdom, and optionmoster that report on unsual options trading activity. Generally, hedge funds are the catalyst for these large changes in volumes.
Implied volatilty on XLP is the market's estimate of how much the XLP will move over the course of the year. It has dropped to a 52-week low, which makes this an interesting trading opportunity as premiums are relatively inexpensive. This is reported on an annualized percentage basis.
In addition to the large trading activity, prices of the XLP appear to be breaking out and pushing above resistance from a reverse head and shoulder pattern.
Momentum on the XLF ETF has turned postiive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.
