Auto Group Leads the Discretionary Rebound:
Todays rebound was powerful without a doubt, accompanied by firm volume. The daily gyrations are still keep me on the slightly negative take and I am happy to be on the sidelines. As a trend follower we like to see smoother paths, and I have no issues missing out on the first 5% or so. Thursday excited the bulls as the only three major S&P sectors to advance 3% or more were the new communication services, technology and consumer discretionary. The rally within was broad based, and even if it was led by the lagging automobiles (F and TSLA rose by 9.9 and 9.1% respectively), there were plenty of other spaces inside the consumer space that were lively. The homebuilders seem to be making a stand witnessed as the XHB recorded a bullish engulfing candle on 10/23 in the second biggest volume in all of 2018. The ETF is higher just 4 of the last 27 sessions, and many inside the group like TOL have left investors burned before. Below however shows the ample risk/reward scenario with a tight stop below 29.
Discretionary Downfall?:
Speaking about the overall markets we were concerned earlier in the year how the semiconductors were rolling over. They were followed by the software names, and on the chart below one can see the discretionary names are now playing catch up as they are weighed down. Obviously the retail group is a good gauge of who giddy the consumer is feeling, via their purchases of goods. There are some names that have weathered the storm in the group better than others, like a CROX or FIVE, with the latter a bit concerning with its fractional gain today on an energetic tape. The XRT is trying to avert a 6 week losing streak, inching higher by 1.3% heading into Friday, but volume the prior 3 weeks as it undercut its 200 day SMA was robust. The ETF now sits 12% from most recent 52 week highs, and bears are feeling good as it lost its 200 day very quickly after briefly recapturing it on 10/16.
Examples:
In our Consumer Sector Review from 10/18 we highlighted DKS, and below is the chart of how it was presented. We asked if it could go the way of big box retailer Toys R Us, and of course we have the Sears bankruptcy. Not long ago there was a more specific peer the Sports Authority that went under as well (I remember this one had a nice move from I believe $3 to $40). All that being said DKS is a mammoth of a brick and mortar and every time I visit one of their locations for fishing gear, I feel like I would be able to hear my echo if I yelled something. But we are strictly PRICE action observers as this name did NOT participate in the euphoric rally Thursday. Add to that, is the wide and loose trade, a hallmark bearish characteristic. It broke below the bear flag today and look for a move to 28, which could see some temporary support as it fills in a gap at the round 30 number from 5/29.