One key group of stocks is on track for its worst year since 2008. Here’s what it means

The consumer staples sector is at the bottom of the S&P 500 for 2018 and tracking for its worst yearly performance in a decade. The charts are so bad they might actually be good, says one market watcher.

"Look at the long-term chart, it looks absolutely horrible," said Matt Maley, equity strategist at Miller Tabak, on CNBC's "Trading Nation" on Tuesday.

"It's broken below its trend line going all the way back to the crisis lows of 2009," Maley added. "It's broken below its 2017 low, its 2016 low, its 200-day moving average."

The XLP consumer staples ETF is down nearly 13 percent for the year, trailing the S&P 500's more than 1 percent gain. The ETF has not been able to recover to a price above its declining 200-day moving average since falling below that support level in mid-February.

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

The charts may look ugly, but the severity of the sector's losses could set the group up for a bounce, Maley said.

"The one thing that we see now is that in the most recent decline, volume has kind of petered out, so I'm starting to wonder if this thing's getting washed out a little bit," he said. "If you look at its weekly RSI chart, it's as [oversold] as it's been since, again, those 2009 lows."

The XLP's relative strength index, a momentum indicator, declined to 28.3 at the beginning of May, but rose back slightly to 36.4 on Wednesday. A level below 30 generally indicates oversold conditions.

"I'm kind of hoping the thing can bounce back a little bit but with so many stocks flat on their back it's hard to be real confident about that," said Maley.

The headwinds facing the sector look difficult to overcome, according to Dennis Davitt, partner at Harvest Volatility Management.

"They've been hit by higher interest rates — people feeling that they're not going to be as attractive so people are moving out of those stocks and moving into maybe just plain old debt-yielding instruments — and higher commodity prices," Davitt said on Tuesday's "Trading Nation."

The XLP ETF was up 0.4 percent Wednesday in its first positive session of the week. The group is tracking for a nearly 2 percent decline for May.

Disclaimer

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more

Connect