RETAILERS CONTINUE TO WEIGH ON CYCLICALS -- CONSUMER DISCRETIONARY SPDR FALLS BELOWS 50-DAY AVERAGE -- HOMEBUILDERS ARE ALSO WEIGHING ON CYCLICALS -- HOME CONSTRUCTION ETF FALLS TO LOWEST LEVEL IN A YEAR -- RISING BOND YIELDS ARE A BIG REASON WHY
RETAILERS CONTINUE TO WEAKEN... Tuesday's message showed retail stocks under selling pressure. That selling is continuing today. Chart 1 shows the S&P Retail SPDR (XRT) nearing a test of its July/August lows and maybe even its 200-day moving average (red line). The Tuesday message also expressed concern that retail selling was starting to pull down cyclical stocks in general. And they appear to be doing that. Chart 2 shows the Consumer Discretionary SPDR (XLY) trading below its 50-day average (blue line) for the first time since April. The top box shows its 14-day RSI line slipping to the lowest level since March which reflects loss of upside momentum. And the daily MACD lines (overlaid on the price bars) continuing to weaken even further. Retailers aren't the only stocks weighing on the cyclical sector. Homebuilders are doing much worse.
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Chart 1
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Chart 2
HOMEBUILDER ETF FALLS TO LOWEST LEVEL IN A YEAR ... Previous messages have pointed out that rising bond yields are normally bad for bond proxies like utilities and REITS, as well as dividend-paying consumer staples. Homebuilders need to be included in that list. The weekly bars in Chart 3 show the U.S. Home Construction iShares (ITB) falling today to the lowest level in more than a year. The ITB has now fallen -21% since the start of the year which qualifies as bear market territory. One of the biggest factors weighing on the housing industry is rising bond yields, which translate into higher mortgage rates. The green line in Chart 3 shows the 10-Year Treasury yield at the start of the year rising above its early 2017 peak to its highest level in more than three years. That early 2018 upside breakout signalled that mortgage rates were also heading higher, and was most likely a major contributing factor to the January peak in homebuilding stocks. Yesterday's move by the 10-Year Treasury yield to the highest level in seven years appears to be putting even more downside pressure on homebuilders. Homebuilders have been the weakest part of the consumer cyclical sector over the last three and six month periods, and since the start of the year. The only cyclical stocks doing worse than homebuilders today are in clothing, footwear, and toys.
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Chart 3
NASDAQ LEADS RETREAT IN STOCKS... Selling in biotech and technology stocks are weighing heavily on the Nasdaq market which is leading a general retreat in stock prices. Chart 4 shows the Nasdaq 100 Trust (QQQ) nearing a test of its 50-day average. Its daily MACD lines (overlaid on price bars) look a lot weaker and may be hinting at more selling to come. A big drop in semiconductor stocks is also taking a toll on the Nasdaq and tech sector. Chart 5 shows the PHLX Semiconductur iShares (SOXX) nearing a test of its 200-day moving average (red line). Most sectors are in the red today with the biggest losers in technology, communications, cyclicals, and healthcare. Another rise in bond yields is boosting financial stocks.
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Chart 4
