CONSUMER STAPLES START TO ATTRACT NEW MONEY -- THAT SUGGESTS INVESTORS ARE LOOKING FOR DEFENSE OR VALUE -- WEEKLY LEADERS INCLUDE SUPERVALU, KROGER, SAFEWAY, AND SYSCO -- NYSE AD LINE NEARS 2007 HIGH

CONSUMER STAPLES SHOW SOME STRENGTH ... For the first time since March, consumer staples are starting to show some market leadership. They were the strongest group on Friday, the third strongest on the week, and second strongest of the last month (behind energy). Chart 1 shows the Consumer Staples SPDR (XLP) climbing to a new 52-week high. The solid line is a relative strength ratio of the XLP to the S&P 500 since the start of the year. The RS line peaked in March when the market bottomed. It hit a new low in mid-September. That's normal in an uptrend since defensive stocks usually lag behind. The line has started to climb since mid-September. My September 25 message wrote about new signs of strength in some defensive categories like staples, healthcare, and utilities. I've written several articles since then showing upside breakouts in a number of healthcare stocks. Arthur Hill showed some more yesterday. My focus in this article will be on consumer staples stocks that have suddently started to rise. Let's start with Sara Lee which I showed on September 28 as an example of some new buying in this sector. Chart 2 shows the stock consolidating just below a new 52-week high. Its relative strength ratio (below chart) bottomed in September.

Chart 1

Chart 2

THIS WEEK'S STAPLE LEADERS ... All four of the following staple stocks have a few things in common. All four achieved upside breakouts this week on rising volume. In addition, their relative strength ratios (below charts) all jumped for the first time since March. I'm showing them in order of ascending strength. Chart 3 shows Supervalu (SVU) breaking out to a four-month high. Chart 4 shows Kroger (KR) exceeding its June peak to trade at a nine-month high. Chart 5 Safeway (SWY) surging to a nine-month high as well. Chart 6 shows Sysco Corp. (SYY) reaching a new 52-week high. All four had been market laggards until this month. The fact that they're starting to show new relative strength can mean a couple of things. One is that investors are starting to turn a bit more defensive on the stock market rally. A second is that investors are starting to buy neglected stock groups (like staples and healthcare) that are perceived to have more value. Investors looking to invest some new money, but concerned about the market being up 60% since March, might want to consider consumer staples. I said the same thing a couple of weeks ago about healthcare. Both groups certainly offer value. In addition, they should hold up okay even if the market were to weaken.

Chart 3

Chart 4

Chart 5

Chart 6

NYSE ADVANCE-DECLINE LINE NEARS OLD HIGH ... One of our readers asked for a look at the NYSE Advance-Decline line, and this may be a good time to start keeping an eye on it. Chart 7 shows the NYAD nearing a test of its 2007 peak. What's surprising is that the NYAD has retraced nearly its entire downtrend while major market indexes have retraced only half. That's probably good news since the NYAD is viewed as a leading market indicator. One possible concern, however, is that the AD line may meet some resistance near its old high. That's why it's worth keeping a close eye on as its retests its 2007 high.

Chart 7