4th of May 2018

It is the first week of May 2018 and we have been following closely the recent performance of the SPDR AMEX Consumer Staples Index (XLP), which is among the most popular and widely traded ETFs.

The daily chart clearly shows the downtrend in which the price has been trading since the beginning of the year and has managed to reach the current lows at $49 from the $59 highs in February.

The SPDR AMEX Consumer Staples (XLP) is an exchange-traded fund (ETF) that tracks the leading consumer-staples stocks drawn from the S&P 500. The fund’s holdings are mainly companies with a large market capitalization due to the fact that investors and traders appreciate those companies for their familiarity and stability.

Since its foundation in 1998, the XLP has managed to triple in value, bringing great profits for its traders and investors. It has currently got $13 billion under management and its average daily volume is $726 million.

In fact, the exchange-traded funds (ETFs) have been extremely popular among investors especially in the past 10-11 years after the financial crisis. Among the biggest benefits of investing in an ETF are the lower expense ratios, tax benefits, the opportunity for traders and investors to invest passively by not having to pick individual stocks as well as bonds and commodities themselves, but rather have the professionals create a diversified portfolio for them and therefore be able to lower the risk and maximize their profits.

In other words, by picking an ETF the investor buys shares of a certain ETF on the market which itself invests in stocks within a particular sector in the economy. In our case, the XLP invests in consumer staples (basic necessities), such as food and beverage, household goods, feminine products and also items such as alcohol and tobacco.

The ETFs are quite different compared to traditional open-end funds. Traditional open-end mutual fund shares are traded only once per day after the market closes and the trading activity (buying and selling) is only done with the mutual fund company that issues those shares. Also, investors must wait until the end of the day before the fund’s net asset value (NAV) is reported before they could figure out what price they paid for the shares they bought during the day and the price they will receive for selling their shares on that day. On the other hand, ETFs are bought and sold during the day while the markets are open. The pricing of the ETF shares fluctuates continuously during the normal exchange trading hours. Therefore, ETF investors know the exact price they bought at right away and at what price they sold their shares on the market.

The Dow Experts base their analyses on the importance of the inter-market correlations they have specialized in, giving us a chance to identify different market movements, such as trend continuations and trend reversals which are among the hardest tasks for traders and investors in general.

Based on our correlation-confirmation model that analyses the correlations between the major ETFs and stock market indices, the correlation between the XLP and the XLV (Health Care Select Sector SPDR Fund) is 75%. Since both ETFs draw stocks from the S&P 500, their component stocks play key roles in the biggest US index, representing the performance of the biggest 500 companies in the US.

By looking at the daily charts on both XLP and XLV, one could see that the charts look very much alike and have been very useful for identifying different market signals, such as trend continuations, market reversals and break ups and downs which we have been taking advantage of. Our analyses based on these factors have been maximizing our followers’ profits.

It is the 4th of May 2018 and we have been analyzing the performance of the XLP and the XLV since the beginning of the year. In fact, the market has been in a downtrend since February, during which the XLP dropped from $59 back then to reach the current lows at $49. In fact, the S&P 500 had been in a very strong uptrend throughout the whole 2017. We saw it bounce from the $2250 lows in January to reach the $2880 exactly one year later in January 2018, which represented a 30% return in 12 months.

Historically speaking, the average annualized total return for the S&P 500 for the past 90 years has been 10%. In other words, it was only expected to see a profit-taking correction on the market after the huge bullish rally which brought a 30% return, meaning traders and investors made 3 times more money than the average return the market has been bringing for the past century.

Logically speaking, the XLP index which relationship with the S&P 500 is 88%, followed suit and had been bullish in 2017. Yet, the profit-taking interest among traders and investors increased and they started taking profits after the huge upside rally. This in turn immediately led to a quick downside movement, which could clearly be seen on the XLP and XLV charts.

Going back to our previous point, the XLP made a correction of 17% to reach $49 in 3 months. Yet, our expectations for the consumer staples and the healthcare sectors remain strongly bullish, as nothing fundamental has really happened that should lead to a longer-term trend reversal and send the prices lower. We have been following the leading companies within the two sectors and their performance and remain strongly bullish for the next few months.

Our correlation-confirmation model is extremely important here because it would give us a chance to identify when the market is about to reverse back to the upside and give us a signal to start buying at these low levels, which of course is the basis of investing in general – buying low and selling high.

Our successful investing model includes the importance of both fundamental and technical analysis, which we use in all our trading analysis, and ideas we provide our followers with.

By looking at the daily charts of both XLP and XLV, we could see that the technical indicators do not behave the same way compared to the chart. We could also clearly point that while the price of the XLP has been forming lower lows and lower highs on the daily chart, the technical indicators, such as the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) have been forming higher highs and higher lows. In other words, this lack of confirmation and the difference between the movements of the prices and those shown by the technical indicators refer to a Convergence, which is an important indication for identifying the next market move. Furthermore, the convergence on the chart also matches with the price touching the lower diagonal support line where the lower Bollinger band touches the support as well, giving further bullish indications. The trading volume has started to decrease as well; meaning that the selling activity has decreased substantially where traders would be interested in taking profits at the current lows. On the other hand, buyers would be interested in buying at these current lows and take advantage of the great upside potential in the next few weeks and months. The behaviour of the price at any given point in time is extremely important for being able to identify the next profitable trade on the market. Thus, we consider the importance of the volume traded – on a strong downtrend, the prices tend to fall quickly and that is usually done at a significantly high volume. On the other hand, when the trend is about to reverse back up, the volume tends to decrease usually at a strong support or a psychological level where traders start looking for buying opportunities and that leads to a trend reversal and a strong bullish rally afterwards.

Going back to our previous point and the convergence that has been formed between the price of the XLP and the technical indicators, we would like our traders to see the double bottom figure that has been formed while the RSI and MACD have formed higher lows and higher highs which is seen as a very strong bullish indication and a signal that it is very likely to see a trend reversal from now on.

Chart: XLP

*** Considering all factors mentioned above, we would be buying the XLP at $48-$49. Our initial take profit target would be in the area between $54 and $55. Should the price make a profit-taking correction down close to the $52 mark after the 10% bullish rally that we are expecting, we would be interested in buying again and taking advantage of the great further upside potential the price has to offer and will then be keeping our buy positions until the price reaches the $55-$56 mark.

Following our correlation-confirmation model for identifying the next great movement on the market, which would help maximize our traders’ profits, we have analyzed the performance of the Health Care Select Sector SPDR Fund (XLV). By thoroughly analyzing the performance in the sector and the strong earnings reports the leading companies within the sector have come up with, together with the performance of the whole US economy and the expectations for the next few months, we have concluded that there is a huge upside potential for the XLV which is very strongly correlated with the XLP as already stated earlier (75%).

From a technical standpoint, the chart of XLV looks very similar to the XLP. It had been in a very strong uptrend in 2017, followed by a correction from February this year that sent the price from the $92 highs to the current lows at $79.50. Yet, the downside trend has come to its end and that could clearly be seen by analyzing the technical indicators and their behavior. Like the daily chart movements on the XLP analyzed above, the indicators on the XLV chart also show a clear convergence on the price where it has created a double bottom bullish figure already, while the indicators are not only forming a double bottom at a strong support line at $79.50-$80, but have even formed higher lows, giving even further stronger bullish indications. Historically speaking, we have seen quite a lot of buying pressure at these lows at $80 and traders have ben pushing the price higher every time it reached that level in the past 7-8 months. Therefore, the behaviour of the XLV is confirming our cross-correlation model and is confirming our analysis showing that the prices of the XLP and XLV should start reversing from the current levels, which would give us a chance to make high profits for our traders to the upside.

Chart: XLV

Based on our analysis and all the factors that conclude that we should see a bullish reversal on the XLV, we would start buying at the $79-$80 lows in order to benefit from the great upside potential expected.
The first key level we would be looking to take our profits would be at around $84-$85. Should the price make a short-term correction down towards the $82-$82.50 we would be interested in adding more to our buy positions and then would be taking our profits at around $86-$87.

The largest sector within the XLV is the pharmaceuticals’, accounting for 43%; meaning that the leading pharmaceutical companies play a big part and have a big impact on the performance of this ETF. In fact, the biggest company by weight within the XLV is Procter and Gamble with its 16% presence within the ETF’s portfolio, followed by Coca-Cola (11%), PepsiCo Inc. (10%) and Walmart Inc. (9%).

Procter & Gamble

The first stock-pick for this week would be the leading consumer goods company Procter & Gamble (P&G). Founded back in 1837, the company specializes in personal and consumer health, hygiene products and personal care. There was a key decision made by the company in 2014 where it decided to sell a huge portion of its brand portfolio in order to focus on the 65 brands it owns that produce 95% of P&G’s profits. Since that, the company has been performing great and has managed to deliver very strong financial statements in the recent quarters and has been beating analysts’ expectations.

P&G plays a key role in the XLP – Consumer Staples Select Sector SPDR Fund (XLP). The company is the biggest in the ETF with its 16% presence. P&G’s has for decades manufactured many of the world’s consumer staples brands, or products that are necessary for people in their daily life. Some of the company’s products include Gilette, Head & Shoulders, Always, Ariel and Pampers.

Investors have been very favourable towards P&G’s stock for the past few decades and one of the main reasons for that is that it pays a very healthy dividend that has been growing for more than 60 years. It currently yields around 3% per year, which is higher than the industry’s average of around 2.5%.

Chart: P&G

Our overall longer-term expectations on Procter & Gamble remain extremely bullish and believe the current price offers a huge upside potential for the next few weeks and months.

P&G’s stock has been in a strong downtrend since the beginning of 2018 when it was trading at $92. Due to the correction of the whole stock market in the US during that period of time and the fact that all companies within the consumer staples have dropped ever since, P&G has dropped towards the $71 lows which represents a 22% correction in less than 4 months.

Yet, as we stated above, our expectations for the US stock market remain strongly bullish for the next few months. Taking into account the confirmations that our correlation analyses has concluded and the fact that we are buying the XLP and XLV and expecting a bullish reversal to the upside, we believe Procter & Gamble would be one of the best stock picks that would maximize our traders’ profits when the price starts bouncing back up.

The technical indicators have gone to the oversold territory – the RSI is currently trading at 22, which represents a strong oversold mark where the prices tend to find lots of buying interest. Moreover, the MACD has started crossing back up in the oversold territory as well, giving lots of bullish indications to follow up on. A strong convergence has been created on the chart, similar to the XLP and XLV charts that we have analyzed above, while the price is touching the strong diagonal support mark at the current $70.50.

*Based on all above stated factors, we would be buying at the current levels at $70.50. Should the price drop another $1-$2 to the downside we will be adding more to our buy positions in order to get a better average price. Our analysis shows that the price offers around $5 to $10 potential upside movement for the next few months. Our first profit taking area will be at $75, followed by our longer-term goal at $80. Should the price break the $80 mark, we would keep our trades towards the $84-$85, which would maximize our followers’ profits to the upside.

Johnson & Johnson

Our second stock-pick for today, the 4th of May 2018, is Johnson & Johnson (J&J)

J&J is the biggest stock in the XLV with its 10% weight within the ETF.

Founded back in 1886, the company is engaged in the research and development, manufacture and sale of a range of products in the healthcare industry. It develops medical devices, pharmaceutical and consumer packaged goods. The stock is part of a few key US indices, such as the Dow Jones Industrial Average (DJIA). The company’s primary focus is products related to human health and well-being including baby-care, oral care, skin care, over-the-counter pharmaceutical, women’s health and wound care products. With its operations in 60 countries and products sold in over 170 countries, Johnson & Johnson has become a global leader in the sector it operates.

It is among the 50 largest United States corporations measured by revenue, and one of the most valuable companies in the world.

By looking at the company’s financial statements, we at Dow Experts would like to say that the company has done a good job lately and has kept on delivering a great value for its shareholders. In other words, the company’s revenues have been rising in the past 5 years and the net income has risen steadily, which has given a chance to the company to pay higher dividends to its shareholders, thus maximizing their investment returns.

The company has got an ROI (Return on investment) of 11% and an ROE (Return on equity) of 23%, while the dividend yield is 3%, which represents a good dividend return, especially considering the great upside potential the stock has to offer.

By looking at the chart, our followers could see that Johnson & Johnson’s stock hasn’t really done a great job so far this year. The main reason for that is the correction on the market we have been seeing since the beginning of 2018. As we have indicated earlier, 2017 was a very bullish year for the whole stock market in general. Thus, it was more than expected to see a profit-taking correction where traders who made tremendous profits to the upside to start selling their holdings in order to cash in the profits. Therefore, the profit-taking correction indeed took place and that is the reason to see most of the largest companies’ stocks trading at such great discounts. In other words, this correction gives an amazing opportunity for traders to start buying and making huge profits to the upside.

As we have indicated above, our overall expectations for the XLV remain strongly bullish. Since J&J represents 10% of the ETF and is the biggest holding within the fund, we believe the correction that has occurred on the chart since the beginning of 2018 is an amazing opportunity for a buy position at a huge discount, which will give a chance for our followers to maximize their profit potential to the upside.
Our thorough fundamental and technical analysis has concluded that Johnson & Johnson should be trading a lot higher in the longer term – we believe in the next few months the price should test the highs at $145-$150. Thus, the current price trading at $121 is giving us an a great buying opportunity.

Similarly to the XLP, we have seen the price form lower lows and lower highs on the daily chart, while the technical indicators have been forming higher highs and higher lows. This could easily be seen by looking at the RSI and MACD indicators and as we have stated in our previous analysis on the XLP, this means there is a convergence between the price action on the chart and the technical indicators. The convergence formation on the chart is seen as a bullish reversal indication and has been working very efficiently for many decades – it has actually been among the best indicators for trend reversals and is widely used by traders. Moreover, the Bollinger bands indicator matches with the support at $120-$122 where the price is currently standing. The RSI is trading in the oversold territory just above 30, giving signals that the price has fallen quite a lot and seems exhausted to the downside, lacking a further downside potential, while the MACD indicator started crossing up in the oversold territory and is giving further bullish indications.
Overall, all these technical factors are pointing out for a very likely trend reversal and we will take advantage of that in order to capitalize on the upside reversal in the short as well as in the longer term.

Chart: J&J

*We will start buying Johnson & Johnson at the current $121-$122 lows. Our short-term target is set at $126, followed by our longer-term take profit area at $135. In case the price makes a few dollars downside correction after reaching our first take profit target, we will be interested in buying some more and be able to further maximize our profit potential to the upside.

Walmart Inc.

Our third stock-pick for today, the 4th of May, is Walmart Inc.
Walmart is the top 4 company within the XLP with its 9.21% weight. Founded by Sam Walton back in 1969, Walmart is an American multinational retail corporation; operating a chain of hypermarkets, discount department stores, and grocery stores. The company operates with more than 11,000 stores and clubs in 27 countries around the world. Having grown tremendously in the business it operates in the past few decades, Walmart is currently the world’s largest company by revenue.

Walmart is in the Consumer-Staples sector and the products it sells are considered non-discretionary. In other words, these are basis necessities or products that are considered essential in our day-to-day lives.

Let’s have a look at Walmart’s chart and the overall price movements so far in 2018.

The daily chart shows that Walmart’s stock has clearly followed the overall market correction that has occurred so far in 2018. As we have mentioned in previous analyses, the whole stock market in the US is heavily correlated, meaning that even the most profitable and best performing companies’ stocks drop when there is a correction in place. Walmart’s stock price did a great job in 2017, following the overall market sentiment and the strong bullish rally that the market presented. In fact, it is important to mention that the stock almost doubled in price. It was trading at $65 in the beginning of 2017 to reach the highs at $109 in January this year. Since then though, we have seen it follow the overall profit-taking correction on the market and drop towards the current lows at $85, representing a 22% correction in the past 4 months. Yet, we have clearly been expressing our overall bullish expectations for the whole US stock market in the middle to longer term. The economy keeps expanding and creating more jobs. The unemployment rate has gone close to record lows and the biggest companies keep showing a continuous growth in their financial statements.

Walmart has done a great job in the past few years. It has managed to keep on increasing its revenues and beating earnings per share expectations, delivering a great value for its shareholders. In fact, the company has got a RoA (return on assets) of 7%, RoE (return on equity) of 21% and RoI (return on investment) of 11%. At the same time, the dividend it pays to its shareholders is around 2.5%.

Walmart’s beta is only 0.37, meaning that it is a less risky stock to own and is less exposed to huge market volatilities.

We at Dow Experts value Walmart’s business and believe what is currently happening with its share price is giving us a great entry level to buy the biggest company in the world by revenue at a 22% discount. Our investment approach values the importance of being able to buy undervalued companies at a lower price, thus being able to maximize our profit potential to the upside afterwards. Therefore, when such a huge company loses 22% of its value while there is no fundamental reason to believe any further downside potential will take place, we take advantage of these great corrections and that gives us a chance to make huge profits when the price starts reversing back to the upside.

As we have already mentioned in our analyses on the XLP and XLV above, there is a discrepancy between the price action on the chart and the technical indicators. In other words, the price has been forming lower lows and lower highs, while the indicators have not agreed with that and have been forming higher highs and higher lows. This is called a convergence on the chart and is a very useful too for identifying where the price of a given asset will start reversing the current trend. In fact, this is what most inexperienced traders and investors find as the hardest thing to do on the market. Yet, our clients have the great advantage of following our professional expertize and assistance, which give them a chance to maximize their profit potential.
Actually, the daily chart on Walmart looks similar to the ones of XLP and XLV. The technical indicators though agree with the discrepancy between the chart and the price and have not been showing a further downside potential lately. It is important to say that since the beginning of March this year the price has been consolidating between $87 and $85, showing a significant decrease in selling activity among traders and that was the first sign for a potential uptrend reversal. In fact, the major technical indicators have started consolidating as well – the RSI started trading sideways and giving further signals for a potential upside reversal, while the MACD has already crossed up in the oversold territory and the lower Bollinger band matches with the current support line at $85, giving strong buying indications. Therefore, we believe the downside movement has come to its end and it is finally time for bulls to come back in play and push the stock higher. Therefore, we will take advantage of that in order to boost our followers’ profits to the upside.

Chart: Walmart Inc.

*We will start buying Walmart’s stock at the $85 support mark. Our short-term profit-taking target stays at $89 where we will be cashing in some of our buy positions. The longer-term target where we are expecting to make even higher profits stays at $95-$100 where we will be looking to cash in all our profits and then expect a profit-taking correction which would give us a chance to enter our buy positions at a good support mark and make more profits to the upside.

Pfizer Inc.

Our fourth stock-pick for today, the 4th of May 2018, is Pfizer Inc.

Pfizer is a research-based global biopharmaceutical company. The Company is engaged in the discovery, development and manufacture of healthcare products. Founded back in 1849 in New York, the company is one of the biggest pharmaceutical companies measured by revenue, profit and market capitalization. Pfizer is focused on developing and producing medicines and vaccines for a variety of medical disciplines, including immunology, cardiology, oncology, endocrinology, and neurology. With its 6% presence, Pfizer plays a key role within the XLV (Healthcare Select Sector SPDR Fund).

By looking at the financial statements of the company, we would see that Pfizer has done a great job in the past 5 years and has kept on delivering great financial results. The revenue of the company has kept on rising between 2014 and 2018 and the net profit has remained strong during that period of time. It is important to say that the company has also been investing in property, plant & equipment and has been spending on R&D (research and development) which is extremely important for healthcare companies because it gives them a chance to research new products and new markets and be able to increase its presence within the different segments in the market. Such kind of R&D and long-term investments tend to benefit healthcare companies in the longer-term, which of course will then benefit its shareholders.

Moreover, Pfizer has managed to increase its longer-term investments without having to borrow too much money, meaning it has been reinvesting its profits which in Finance means the company is growing organically.

The company operates with an 80% gross margin and 29% net profit margin. The return on assets is 9%, while the return on equity is 23% and return on investment of 11%. Its price-to-earnings (P/E) ratio is currently 14, while the S&P’s P/E is 23, meaning that the current stock price is undervalued in relation to the other biggest players within the S&P 500.

By looking at the daily candles, our traders would notice that Pfizer’s stock has been following the market’s trend and the correction that has occurred since the beginning of 2018. After a strong 2017 where Pfizer’s stock rose 20% and made huge profits for its traders and investors, we have been seeing a correction in the past few months, that sent the price from the $39 highs to the current lows at $34.
In fact, this represents a 13% correction, which is something great for investors who wish to buy such an amazing company at a 13% discount from its highs. Considering the strong financials and the great products the company has to offer, our longer-term expectations for Pfizer remain strongly bullish. Therefore, the recent correction is very welcome for us and we would be able to buy one of the biggest pharmaceutical stocks at a great discount and follow the longer-term bullish trend.

Pfizer’s stock has been following the movements of the XLP and the XLV and the charts look very much similar. The stock is currently trading at just above $34. The daily chart shows that the price tested that strong support mark at $34 in the end of March but failed to close a candle below that level which immediately motivated buyers to start opening their long positions and that sent the stock towards the $37 highs afterwards. Currently, the price is testing that level again and from a technical standpoint, the current test of that strong support mark, together with the double-bottom figure that has been formed on the daily chart and the fact that the technical indicators have gone to the oversold territory and are already giving strong bullish indications, we believe it is time for the stock to find lots of bullish pressure at that point and reverse back to the upside, making a strong bullish rally which will give our followers a chance to make high profits to the upside.

Chart: Pfizer Inc.

*We will start buying aggressively Pfizer’s stock at the strong support around $34. Considering the recent correction that has occurred we believe there is at least around 8- 10% upside potential which would send the stock towards the $36.50-$37 mark where we will collect the bigger portion on our profits. Should the price then make a short-term profit taking correction that could send the price down with around $1 – $1.50 we would start buying again and keep the positions until the price reaches our next profit-taking area at $40 which would maximize our followers’ profits to the upside.

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Kind regards,

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