CONSUMER DISCRETIONARY SPDR FALLS BACK BELOW 200-DAY AVERAGE -- APPAREL RETAILERS ARE LEADING THE S&P 500 RETAIL SPDR LOWER -- AMAZON.COM ISN'T DOING MUCH BETTER -- CONSUMER CYCLICALS/STAPLES RATIO IS ALSO WEAKENING
CONSUMER DISCRETIONARY SPDR IS BACK BELOW ITS 200-DAY AVERAGE... As of today, the Nasdaq Composite Index and the S&P 500 are trading back below their 200-day averages. That leaves only the Dow Industrials still above that long-term support line. A number of sector ETFs have either failed a test of that their 200-day lines, or are slipping back below them. The latter group includes cyclical stocks. Chart 1 shows the Consumer Discretionary SPDR (XLY) trading below its 200-day line for the first time in a month. That's occurring after the XLY was unable to clear its November high near 111. The XLY:SPX ratio in the upper box shows the economically-sensitive cyclical group underperformng for most of the past two months. The relative strength ratio has fallen today to the lowest level since the end of December. That's a potentially negative sign because the XLY is heavily influenced by retail stocks. And retailers are leading it lower today.
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Chart 1
APPAREL RETAILERS LEAD XRT LOWER ... The daily bars in Chart 2 show the S&P Retail SPDR (XRT) falling back to its 50-day average after being rejected by its red 200-day line. Apparel retailers are leading it lower. Chart 3 shows the Dow Jones US Apparel Retailers Index falling back to its 50-day line as well after failing a test of its 200-day line. That group is the biggest part of the XRT with a sector weighting of 25%. Some of that weakness might be attributed to consumer shopping on the internet. The problem with that view is that the biggest internet retailer isn't doing much better. Chart 4 shows Amazon.com (AMZN) still trading well below its 200-day line. The solid blue line which is a ratio of AMZN divided by the S&P 500 has been dropping during the first quarter. Since retail spending accounts for two-thirds of the U.S. economy, relative weakness by retailers is a bad sign for both.
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Chart 2
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Chart 3
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Chart 4
CYCLICALS/STAPLES RATIO IS WEAKENING ... One way to gauge the current strength of the stock market is to compare the relative performance of economically-sensitive cyclical stocks to more defensive consumer staples. And the message there isn't very encouraging. Chart 5 plots a ratio of the XLY divided by the XLP over the last year. The cyclicals/staples ratio peaked last June and started dropping sharply during October. The first quarter rebound has recovered about half of that lost ground, and appears to be rolling over to the downside again. It's usually not a good sign for stocks when investors prefer the safety of consumer staples over cyclical stocks that are tied to the ups and downs of the business cycle. Especially a business cycle that's just three months shy of a ten-year expansion and four months from becoming the longest in history. Dividend-paying consumer staples are also getting a boost from falling Treasury yields. Falling government bond yields here and in Europe are themselves another sign of economic weakness.
