Discretionary Doldrums No More?

We have been hesitant to author consumer discretionary notes recently, as it was not warranted with the group’s overall weakness. That feels like it will be changing. This is the first time in a while we did back-to-back notes on the sector. The soft action was seen in large and small-cap former leaders with RVLV and CELH now each having been cut in half, and that is after Monday’s big reversal. In the home improvement arena HD and LOW are still in correction mode, but their smaller-cap cousins in the niche space have seen divergent action with BECN holding strong down just 9% from recent highs, while FND flounders 30% from its annual peak. Below we see the ratio chart comparing the XLY to the XLP, a common way to gauge “risk-on” within the consumer space, and some would say in the overall market. It still has yet to be seen but with some healthy action among discretionary names, the XLY is showing some relative strength lower by .6% this week so far, while the XLP has dropped 1.5%. 

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