HOME IMPROVEMENT STOCKS LEAD CYCLICALS LOWER -- AMAZON HAS ALSO WEAKENED -- CONSUMER DISCRETIONARY SPDR IS UNDERPERFORMING THE MARKET -- IT'S ALSO UNDERPERFORMING CONSUMER STAPLES WHICH ARE GAINING GROUND
HOME DEPOT AND LOWES TUMBLE... Heavy selling in retail stocks is weighing on cyclical stocks which are the one of the day's weakest sectors. Home improvement stocks are the day's weakest group in that sector. Chart 1 shows Home Depot (HD) losing nearly -3% and falling below its 50-day moving average. Chart 2 shows Lowes Companies (LOW) in a similar situation. Pier 1 Imports (PIR) is down -7%. Even bigger losses in other retail categories are being seen in Advance Auto Parts (-23%), Dick's Sporting Goods (-21%), Coach (-13%), and Under Armour (-4%).
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Chart 1
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Chart 2
AMAZON IS ALSO LOSING GROUND... A lot of the selling in retail stocks is being blamed on Amazon.com which seems to be threatening everyone else's space. Amazon is also the biggest stock in the XLY and one of its strongest stocks this year. Judging from its recent performance, however, even that stock is struggling. The daily bars in Chart 3 show Amazon.com (AMZN) losing ground since late July. The falling red line shows AMZN actually falling faster than the S&P 500 over the same period (and on rising volume). [The former leader has also lost more ground than the XLY over the last month]. That being the case, Amazon may not be the biggest reason for recent selling in that sector. Something bigger may be going on. And that's a potential negative sign for the market.
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Chart 3
CONSUMER DISCRETIONARY SPDR IS WEAKENING... The daily bars in Chart 4 show the Consumer Discretionary SPDR (XLY) in a weakened technical condition. In late July, the XLY failed an attempt to exceed its early June peak. Since then, it has fallen below its 50-day average and is now closer to its July low than its July high. And it may be heading for a test of that early July low. That would be an important test for it, and possibly the rest of the market. The red line on top of Chart 4 shows the XLY/SPX ratio trading at the lowest level since March. That's only part of the story.
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Chart 4
CONSUMER STAPLES ARE GAINING ... Chart 5 shows the Consumer Staples SPDR (XLP) rising above its 50-day line today to reach the highest level this month. Its relative strength ratio (top of chart) is starting to rise as well. That's usually a sign that traders are turning more defensive. That's especially true if they're buying staples while they're selling economically sensitive cyclical stocks (which they are). The relative strength line below Chart 5 shows the Consumer Staples SPDR (XLP) also rising versus the Consumer Discretionary SPDR (XLY). That's not a sign of confidence.
