With all the chatter in the 24-hour news cycle about how bad the economy is – and all the real worry that many people feel as paychecks are constrained while costs seem to keep rising – you’d never think that consumer discretionary has remained a bright spot.
For those who would nitpick about the details: I fully realize that as of this writing, consumer discretionary lags energy, consumer staples, health care, telecom, and utilities in the S&P 500. However, within the benchmark index, the sector is still up 1.21% for July.
When it comes to the S&P SmallCap 600, the situation is quite different, with consumer discretionary showing a monthly decline, with telecom, energy and utilities as the only three small-cap sectors showing July gains.
But a glance at index performance often masks opportunities available to traders who run scans for top-performing stocks.
In some cases, I have disagreements with Standard & Poor’s over what constitutes a discretionary vs. a staple. Monster Beverage (MNST) is classified as a staple. Really? I can hear the shrieks now of “I need my energy drinks!” But I still consider this product more of a discretionary.
(My coffee, on the other hand? Now that’s a staple 🙂
Monster is one of those consumer names that’s rallying higher, recovering from a dip below its 10-week average. One of the things that I learned over the years was never to lose sight of a top fundamental performer even when it undergoes a bout of selling.
While plenty of swing traders prefer to exit a stock as it shows signs of technical topping – and that’s certainly a strategy I employ – it’s not a good idea to completely write off a stock that you’ve sold. It’s normal for institutional investors and big traders to grab some profits, but you often see bargain buyers jump in near the 200-day moving average. When that happens, it often sets the stock in motion, on its next visit to new highs.
Other consumer discretionary names in rally mode this past week include IAC (IACI), home of Match.com. Even in a recession, depression, however you care to characterize this economy, people are looking for love!
(And again, I suppose that brings up the question of “Discretionary or staple?”)
Other names from the sector I’ll be tracking this week include Michael Kors (KORS), Expedia (EXPE), Dollar General (DG), Dick’s Sporting Goods (DKS), Ulta Salons (ULTA), GNC (GNC) and Francesca’s (FRAN).
Some of these are extended from shorter-term moving averages, but a pullback to the 5-day or 15-day exponential line could offer an entry point.