Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Chart of the Day: Discretionary Stocks to Be Clobbered Along with U.S. Economy

By Pinchas Cohen/Investing.comETFsDec 06, 2022 08:59AM ET
www.investing.com/analysis/chart-of-the-day-discretionary-stocks-to-be-clobbered-along-with-us-economy-200633190
Chart of the Day: Discretionary Stocks to Be Clobbered Along with U.S. Economy
By Pinchas Cohen/Investing.com   |  Dec 06, 2022 08:59AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US500
-1.04%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
XLY
-3.08%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
XLE
-0.22%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
XLF
-0.19%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
XLP
-0.39%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DXY
+1.22%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Latest U.S. economic data shows inflationary pressures are still in place
  • Consumer Discretionary (XLY) has been battling Energy for the title of S&P 500's worst-performing sector of late
  • If price falls below $133, XLY will face the uptrend line since the 2009 bottom

After investors celebrated Friday's better-than-expected jobs report, chickens have come home to roost. Traders are beginning to accept that the Fed may sincerely wish to ease its aggressive tightening but cannot find the means to go through with it at the moment.

It's worse. China is finally easing restrictions, and the market can't even pick up on that as the sudden (recurring) realization that too much of a good thing is, in fact, a bad thing. The overheating employment market exacerbates inflation, eroding the dollar's buying power and forcing the US central bank to keep raising rates to slow the economy, literally.

Consumer Discretionary, via XLY, was Monday's second worst-performing sector in the S&P 500 Index, losing 2.88%—almost as much as Energy, via XLE, which dropped 2.97%.

The more the Fed raises interest rates, the more likely the economy will fall into a definitive recession following the year's first two quarters' technical recession. The demand for energy falls when business slows, as manufacturing, shipping, and travel take a hit. Travel also overlaps with consumer discretionary stocks, the focus of this post.

Also, for the weekly view, Energy lagged, followed by Financials (XLF) and Consumer Discretionary, which was flat. On the monthly view, Energy was the only sector in the red, and Consumer Discretionary was again the second worst performer.

XLY was the worst performer over the last three months, 3rd worst performer for the past six months, and the second worst performer since the start of the year.

As the sector's name implies, demand for these companies' goods and services is at the consumers' discretion. Therefore, when times get tough, consumers cut back on these nonessential spending so that they have enough money for what they can't do without, listed on Consumer Staples (XLP).

As aforementioned, Consumer Discretionary's returns have been precisely 0.00% for the past five days. It's noteworthy that Communication Services (XLC) - the ultimate growth sector - has been precisely 0.00% for the past five years.

XLY Daily Chart
XLY Daily Chart

Here, we can see the faceoff between bulls relying on the economic strength continuing. The bottom developing since Oct (yellow) is facing off the downtrend line - reinforced by the 200 DMA - since the Nov 22 all-time high. If the H&S bottom wins, it will run for an ever larger double-bottom if it scales above the $175 level peak (green line), but I don't think so. Let's look at the following chart.
XLY Weekly Chart
XLY Weekly Chart

The price action since May developed a much larger H&S Continuation pattern. The market balance attempted to flip. When it fails, traders will reverse positions and extend the downtrend. We can see that the 2020 peak became a bullish stronghold after buyers absorbed all the available supply and sellers switched sides. Investors remember the 80% surge between Jul 2020 and Nov 2021, and that memory drove them to attempt to repeat that move.

The continuation pattern's height is $41, which is the expected move upon a downside breakout below $133 as the support flips to resistance, the same as when the 2020 resistance converted to support. However, the rising trendline since the infamous Apr 2009 bottom is already $100. Will a chain reaction decrease the price to $133 - $41 = 92? I wouldn't be surprised. The next significant support is in the low 80s, the Mar 2020 notorious bottom.

Trading Strategies

Conservative traders should wait for the continuation pattern's completion, with a close below $130 and a three-day period during which the price remains below the pattern, to weed out a bear trap, followed by a return move that reasserts the neckline's resistance.

Moderate traders would wait for a penetration below the $130 level and a two-day filter, followed by a return move for a better entry.

Aggressive traders could short according to their strategy. Here is a generic example:

Trade Sample - Aggressive Short

  • Entry: $145
  • Stop-Loss: $148
  • Risk: $3
  • Target: $136
  • Reward: $9
  • Risk-Reward Ratio: 1:3

Disclosure: The author does not own any of the securities mentioned in this article.

Chart of the Day: Discretionary Stocks to Be Clobbered Along with U.S. Economy
 

Related Articles

ETF Central
Growth Potential of China ETFs By ETF Central - Jan 31, 2023

China’s economy stalled last year amidst strict lockdowns related to Zero-Covid policies, in addition to an ailing property market. This weighed on Chinese stocks, with the...

Chart of the Day: Discretionary Stocks to Be Clobbered Along with U.S. Economy

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Anamul Hoque
Anamul Hoque Dec 06, 2022 10:33AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
William Robbins
William Robbins Dec 06, 2022 9:17AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Awesome asessment of the market and Stategies. Thanks
Pinchas Cohen
Pinchas Cohen Dec 06, 2022 9:17AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You got it
Donald Weits
Donald Weits Dec 06, 2022 9:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
That 15 month CD at 4 percent is starting to look good to me.
Art Carrano
Art Carrano Dec 06, 2022 9:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Don't tie up your money. Money market fund at Vanguard paying 3.70% and rising. Other places as well.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email