[Chart Of The Week] The Impact of Amazon Not Being A Tech Stock

JC Parets
May 6, 2016

The debate about whether Amazon is in the Technology Sector or the Consumer Discretionary sector is really a pointless one. It isn't anyone's opinion that Amazon is in the Consumer Discretionary Sector. Amazon IS in the Consumer Discretionary sector. In fact, it represents close to 11% of the S&P Consumer Discretionary Sector Index. Amazon could double tomorrow or go to zero and it will have no impact on the Technology sector. Do you know why? Because it's not in the technology sector. It's in Consumer Disctretionaries.

Anyway, the point is that Amazon has been carrying Discretionaries because of its enormous weighting. But take a look at what the Discretionary space looks like if you take this market-cap weighting out of the equation:

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Here is a chart of the Consumer Discretionary sector relative to the S&P500. Discretionaries broke out this week above a downtrend line from last year's highs. This would be awfully impressive if just taken on its own without digging a little bit deeper. You see Amazon, represents almost 11% of this entire sector and is helping to lead the charge:

xly spy

Here is a chart of the S&P500 Equal Weight Consumer Discretionary ETF relative to the S&P500. This takes Amazon's 11% weighting out of the equation and makes it equivalent to every other stock in the sector. Notice the difference in performance?

rcd spy

Finally here is a chart of the Equal Weight Consumer Discretionary ETF failing to break out above the downtrend line from last year's highs and actually rolling over to new lows:

rcd

We want to be shorting this sector very aggressively as long as it is below the downtrend line from last year's highs. I think these stocks are heading a lot lower.

 

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Tags: $RCD $XLY $AMZN

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