AIRLINES, CRUISE SHIPS, GAMBLING, AND HOTEL STOCKS LEAD MARKET LOWER AS CHINESE VIRUS SPREADS -- THAT COULD LEAD TO PROFIT-TAKING IN STOCKS
CONSUMER DISCRETIONARY SPDR PULLED LOWER BY TRAVEL AND ENTERTAINMENT STOCKS... Yesterday's message showed bond yields falling (and bond prices rising) in a flight to the safety of government bonds. And further suggested that fears of the Chinese virus spreading was most likely behind that more defensive tone. Bond yields are falling even further today as that defensive mood continues, and is starting to cause some nervous selling in stocks. But not just any stocks. Stock groups being hit the hardest today are the most vulnerable to the fallout from the Chinese virus. They include airlines, cruise ships, gambling stocks (with close ties to Macau), and hotel stocks (with big exposure to China). Those last three groups are weighing heavily today on cyclical stocks.
Chart 1 shows the Consumer Discretionary SPDR (XLY) being one of today's weaker sectors; and in danger of falling below its 20-day average (green line) for the first time in nearly two months. The two top boxes show its 14-day RSI line also weakening; and its MACD lines turning negative. Those are warning signs of more profit-taking to come in this economically-sensitive sector. Which may also be spreading to the broader market.
CRUISE LINES, GAMBLING, AND HOTEL STOCKS ARE UNDER PRESSURE... Stocks involved in travel or entertainment are under the most pressure today. That includes cruise lines, gambling, and hotels. Chart 2 shows the DJ US Recreational Services Index in decline. It's being led lower by Norwegian, Carnival, and Royal Caribbean Cruises. Chart 3 shows the DJ US Gambling Index also threatening its 50-day line. It's being led lower by Wynn Resorts, MGM Resorts, and Las Vegas Sands. All three stocks have heavy exposure to the gambling industry in Macau which is located in China. Travel to that gambling hub may by interrupted. Chart 4 shows the DJ US Hotels Index also in danger of falling below its 50-day average. That includes stocks with heavy exposure to China which include Marriott Intl, Hilton, and Hyatt Hotels. There's one more travel group being negatively effected.
AIRLINES ARE ALSO DESCENDING...International air travel is also being threatened which is being reflected in weaker airline stocks. Chart 5 shows the Dow Jones US Airlines Index trading below its 50-day average today; and maybe even threatening its 200-day line. Weak airline stocks are taking a toll on the Dow Transports. Airlines are also the day's weakest part of the Industrial SPDR (XLI). Three of the day's biggest XLI percentage losers are airlines.
SAFE HAVEN BUYING MAY SIGNAL PROFIT-TAKING IN STOCKS... Money continues to flow into safe havens like Treasury bonds and gold, and stocks with a more defensive tone (like utilities). While more economically-sensitive stock groups like cyclicals, energy, and financials weaken. Stocks tied to industrial metals like aluminum and copper are also under pressure. As are travel and entertainment stocks which are leading the market lower. All of which may provide the catalyst for some profit-taking in a stock market that's in a seriously overbought condition. Major stock indexes gave up earlier gains, and are under presssure. Their 20-day moving averages may be soon be tested.
