Tuesday, May 12, 2009

Consumer Discretionary Has Been Weak the Past Week

I have been noting on the blog within other entries what appears to be rolling over in many of the hottest stocks i.e. "early cycle" consumer discretionary. These were many of the heavily shorted stocks that the "investor playbook" says to buy ahead of recovery. Now it is too early to say these are "done" - many stocks in uptrends roll back to support areas before starting the next leg up; but it's a group to watch closely.

What is interesting is casual dining restaurants in February diverged from the trend - they were holding up while the market was crumbling and then they were one of the major leading groups in the first 75% of the rally. [America's Hottest Sector: Casual Dining Restaurants] Now many have weakened of late - foreshadow or coincidence? As I stated above, EAT is a perfect example - in fact a chart I like to buy... a huge move, followed by a pullback to support. So for bulls it will be important to hold this area and then begin the next leg up. Could go either way from here.

DRI - another make or break spot; if it breaks this level a huge gap awaits. $33-$34 is key here.

Last - I was not online early in the trading day so I did not put any of these shorts on (many have fallen 6-7% intraday) but I see some interesting opportunities to short again in the Las Vegas casinos. The shorts have been annihilated here and with parabolic charts there are no natural buyers (shorts to cover) so you could see some serious drops. All 3 charts are identical in the fact a huge run has been followed by a consolidation of a week - now the question is: up or down from the consolidation? Another group I am watching...


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