Where is Consumer Discretionary Headed?

I have been noting on the blog within other entries what appears to be rolling over in many of the hottest stocks i.e. "early cycle" consumer discretionary. These were many of the heavily-shorted stocks that the "investor playbook" says to buy ahead of recovery. Now it is too early to say these are "done" - many stocks in uptrends roll back to support areas before starting the next leg up; but it's a group to watch closely.

What is interesting is casual dining restaurants in February diverged from the trend - they were holding up while the market was crumbling and then they were one of the major leading groups in the first 75% of the rally. [America's Hottest Sector: Casual Dining Restaurants] Now many have weakened of late - foreshadow or coincidence? As I stated above, EAT is a perfect example - in fact a chart I like to buy... a huge move, followed by a pullback to support. So for bulls it will be important to hold this area and then begin the next leg up. Could go either way from here.


DRI - another make or break spot; if it breaks this level a huge gap awaits. $33-$34 is key here.


Last - I was not online early in the trading day Tuesday, so I did not put any of these shorts on (many have fallen 6-7% intraday) but I see some interesting opportunities to short again in the Las Vegas casinos. The shorts have been annihilated here, and with parabolic charts, there are no natural buyers (shorts to cover) so you could see some serious drops. All 3 charts are identical in the fact a huge run has been followed by a consolidation of a week - now the question is: up or down from the consolidation? Another group I am watching...

Comments

[RiskReturnO...:]

Simply track ratio of XLY:XLP, XLE:XLY and you can see a reversal. Higher gas prices,lower consumer discretionary, stable consumer staples. This trade will continue to work until oil drops below $50.

May 13 11:58 AM

[Moon Kil Woong:]

Thanks for the charts. I suppose you could say that consumer discretionary is still headed to non-discretionary. Core commodities and commodity related stocks seem to be the better bet since I suspect money has been running to equities in far of inflation.

This should result in leaving out retail in the rising tide unless you think they have the pricing power to raise prices accordingly (enough to keep their profit margin if they have any) and their drop off in sales for doing so will not be severely damaged.

People who have been betting up retail and the broader market on Bernake's green shoots fairy tale have been swindled.

May 13 08:32 PM

[marketman54:]

I think people are only buying what they need. We were all taught a very tough lesson, things can get bad and you need to save a penny for the rainy day.

Most people in this country were prompted to live pay check to pay check and have everything there was to consume. Now these same people and the rest of us either cannot or will not make any purchases.

Discressionary spending, doesn't even exist with 7 million out of work and 100 million scared!

May 13 09:11 PM

[Mark Anthony:]

The April retail sales number was rigged by the swine flu scare. Without that scare factor, the April retail number could have seen an increase, not decrease. The market seems to have a short memory. Read here:

seekingalpha.com/insta...

May 14 02:33 AM