SFO Magazine: Spotlight on Consumer Discretionary Space

Here is my story for SFO Magazine this week:

STOCKS: Spotlight on Consumer Discretionary Space

Friday, December 09, 2011
By J.C. Parets

Pessimism still rules the streets, but this stock market isn’t going down without a fight.

The S&P 500 is up about 8% from the low two weeks ago. But, the 200-day moving average is still the barrier of entry into Santa Clause Rallyville.

There are a few positive developments recently. The Dow Jones Industrial Average has managed to, not only get back above its 200-day moving average, but more importantly has remained above it all week. The same thing can be said about the Nasdaq 100. The Dow Jones Transportation average, however, is still struggling to break through like the S&P 500, but both appear poised for a breakout.

SECTOR SPOTLIGHT

From a sector-by-sector outlook, the strength in the consumer discretionary space cannot be ignored.

As of this morning, SPDR Select Sector Fund (XLY) is just 2% from breaking out to levels not seen since July. If this stock market is going to rally into year end, we want to see continued relative strength out of this area, specifically retailers ($RTH) who hit all-time highs earlier this week. Major components of the consumer discretionary sector McDonald’s ($MCD) and Home Depot ($HD) continue to make new highs. This is very encouraging for the broader market.

From a relative standpoint, the discretionary space is not doing as well as we would like to see when compared to the more conservative consumer staples sector. When the $XLY:$XLP ratio is rising, the market is telling us that participants are willing to add more risk to their portfolios. The opposite is true when this ratio is declining. When we compare this risk-on/risk-off ratio to the S&P 500, we can see the ratio lagging.

Check out the rest of the story at SFO Magazine

Tags: $DJIA $IYT $XLE $FXE $SPY $QQQ