Book Profits in Overvalued Consumer Staples

Thirty-two components of the XLP have moved higher over the past 12 months, while nine have declined. Six moved higher by more than 40%, with Wal-Mart(WMT) up 49.3%, Altria(MO) up 44%, Reynolds American(RAI) up 41.5%, Whole Foods Market(WFM) up 50.2%, Monster Beverage(MNST) up 76.5%, and Constellation Brands(STZ) up 53.8%. The biggest gainers were, therefore, the largest retailer and supermarket, an upper-end supermarket, two tobacco stocks, a soft-drink maker and a maker of wine, beer, vodka and whisky. Consumers in this sluggish economy have been eating, smoking and drinking.

All 41 components are projected to have higher prices 12 months from now, but I am concerned about the generally elevated price-to-earnings ratios, since 25 of the 41 stocks have P/E ratios above 15.

Wal-Mart ($74.55) traded to a new all-time high of $75.24 on July 30. My monthly value level is $71.04 with a weekly risky level at $76.41. WMT reports quarterly results pre-market on August 16, and current earnings expectations are for $1.17 a share.

Altria ($35.92) traded to a new all-time high of $36.29 on August 1. My semiannual value level is $28.53 with a monthly pivot at $35.73 and quarterly and annual risky levels at $37.18 and $37.98.

Reynolds American ($46.61) traded to a new all-time high of $46.93 last Friday, Aug. 3. My monthly value level is $43.50 with a weekly risky level at $48.28.

Whole Foods Market ($94.60) traded to an all-time high of $97.25 on June 26. The stock fell to $81.55 into July 23 and traded as high as $95.98 Friday, giving investors a second chance to sell strength. My weekly and monthly risky levels are $100.09 and $100.37.

Monster Beverage ($66.78) traded to an all-time high of $83.96 on April 30. The stock fell to $61.72 into July 23, and last Friday's high was $66.96. My semiannual value level is $58.04 with a weekly pivot at $65.52 and quarterly risky level at $72.49. MNST reports quarterly results after the close on Aug. 8, and earnings are expected to be 62 cents a share.

Constellation Brands ($29.92) is trading up towards an all-time high of $31.60 set in June 2005. My monthly and annual value levels are $27.50 and $27.35 with a quarterly pivot at $28.23 and annual and weekly risky levels at $31.07 and $32.23.

To summarize, the XLP has had strong upward momentum that has led the index to become overvalued fundamentally and overbought technically. Given weak consumer confidence and flat personal spending, it is time to book profits in this sector.