As the market continues to flirt with all-time highs and merger mania is in the air, MoneyShow's Tom Aspray takes a technical look at a sector highlighted by Warren Buffett's most recent purchase of the iconic ketchup company.

The rising M&A activity has certainly helped keep the market's tone positive. Tuesday's close was the strongest we have seen since early in the month when another short-term trading range was also completed. Market internals were better than 2-1 positive and the NYSE A/D line has made another new high.

The buyout of H.J. Heinz Company (HNZ) has turned the focus on the food stocks and has given quite a boost to the S&P Consumer Staples sector, which broke out of a 12-year trading range last year. The gains have been dramatic for what is generally considered to be a defensive sector.

The Sector Select SPDR Consumer Staples (XLP) is up 8.9% so far in 2013 versus just a 7.6% gain in the Spyder Trust (SPY). With one food stock already in the Charts in Play portfolio, what other food stocks should you be watching?

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Chart Analysis: The Sector Select SPDR Consumer Staples (XLP) closed above the early October highs, line a, on January 25. This makes $36.70 the first level of strong support.

  • Tuesday's close was quite near the daily starc+ band with the weekly starc+ band now at $38.41.
  • The daily relative performance has been in a short-term uptrend since early in the month.
  • The weekly RS line (not shown) is likely to move above its declining WMA this week.
  • The daily OBV looks much stronger as it confirmed the price action by overcoming the resistance at line c.
  • There is first support for XLP at $37-$37.40 with stronger in the $36.40 area.

General Mills Inc. (GIS) staged a marginal breakout in December as it overcame the resistance at $41.15, line d.

  • After the breakout, GIS dropped back to the $40 level in the latter part of December and tested its uptrend, line e.
  • The daily relative performance is just completing its bottom formation as it has moved through resistance at line e.
  • The RS line has been in an uptrend since last September.
  • The daily OBV broke through its resistance from 2011 in early 2012 and has been in a strong uptrend, line g, since last summer.
  • The weekly OBV (not shown) is well above its rising WMA.
  • There is minor support now at $44 with much stronger in the $43.40-$43.30 area.

NEXT PAGE: 2 Food Stocks to Watch

Tickers Mentioned: Tickers: XLP, SPY, GIS, K, HRL