Adding a defensive consumer play to the trade blotter
Key points in this issue:
- We are issuing a Buy on and adding the Consumer Staples Select Sector SPDR ETF (XLP) January 2019 58.00 (XLP190118C00058000) calls that closed last night at 0.51 to our Options+ trade blotter. Our initial stop loss is 0.35 for this trade.
- The swings in the stock market, and especially tech stocks led to our 60.00 stop loss being triggered for the Amazon (AMZN) January 2019 1,800.00 (AMZN190118C01800000) a few days ago.
Over the last several days, we’ve seen a change of sorts in the stock market as high-flying stocks, including a number of technology ones, have come under pressure as investors re-think their growth prospects. That continued yesterday as shares of iPhone maker Apple (AAPL) became the latest one to dip into bear market territory with last night’s close following renewed concerns over the company’s device shipments in the near-term. This, in turn, has led to a few downgrades by Wall Street analysts, that at least in my view, are being somewhat short-sighted.
The same can be said with Amazon (AMZN), which has seen its shares tumble despite there being no slowdown in the shift to digital commerce. That move lower triggered our 60.00 stop loss for the Amazon (AMZN) January 2019 1,800.00 (AMZN190118C01800000) a few days ago. If you didn’t set that stop loss, the pain endured as those calls finished up last night at 36.50.
Now here’s the tough part to swallow – while we may be right in the long-term, the mood in the stock market will prevail in the short-term. And with several of the concerns I’ve talked about here as well as in Tematica Investing and on our podcast, Cocktail Investing, odds are the stock market will continue to be a volatile one.
This has led investors to what some call old economy stocks while others call it looking for the “retro” trade. While there can be some debate about what these phrases precisely are and what their business models may be, one way to interpret them centers on inelastic goods and services. In short, products that people will buy no matter what. In keeping with our Digital Lifestyle investment theme, in today’s world that includes mobile service, but most tend to think of consumable products such as paper goods, personal products, and the like as well as food. This does bleed over into several aspects of our Middle-class Squeeze investing theme.
From my perspective, we have some nice exposure given our positions in Costco Wholesale (COST) and McCormick & Co. (MKC) over at Tematica Investing. Those two, in particular, should benefit from the upcoming “season’s eatings.”
With Options+, however, we should look to capitalize on this “retro-trade” and do so in a way that is diversified, especially in today’s market where it seems any one company can take a hit. This combination has led me to the Consumer Staples Select Sector SPDR Fund (XLP), which is as its name suggests is an ETF focused on consumer staples. Key holdings include Proctor & Gamble (PG) and Coca-Cola (KO) but also Walmart (WMT), Costco, McCormick, Colgate Palmolive (CL) and Altria (MO). For those keeping score, this ETF has several Thematic Leaders and Select List holdings among its constituents.
In keeping with our options focused investing strategy, rather than add shares in the ETF, I’m adding the Consumer Staples Select Sector SPDR ETF (XLP) January 2019 58.00 (XLP190118C00058000) calls that closed last night at 0.51 to our Options+ trade blotter. The position’s timing will carry us through the holidays, allowing us to pick up that incremental holiday spend at Costco, Walmart, McCormick, and others. Given the current market mood, which is likely to last for at least a few more weeks, I’m setting a protective stop loss at 0.35.
- We are issuing a Buy on and adding the Consumer Staples Select Sector SPDR ETF (XLP) January 2019 58.00 (XLP190118C00058000) calls that closed last night at 0.51 to our Options+ trade blotter. Our initial stop loss is 0.35 for this trade.
