Key Takeaways
  •  SPX about-face has taken prices to right above key intermediate-term support.
  • Consumer Discretionary looks to be bottoming vs Staples after a steep decline.
  •  WMT decline putting even more pressure on Consumer Staples at 4%.

*Note: I will be traveling 7/27 therefore no daily report or video. Daily Technical Strategy will resume Thursday 7/28.

Discretionary looks close to bottoming out vs. Staples

The stall out and pullback in US Equities has accelerated further given  WMT’s profit warning and subsequent 8% + drop on Tuesday.   NDX has taken the lead on this decline and has fallen for the last three trading sessions.  As we’ve talked about in recent days, Technology has lagged over the last week along with Consumer Staples while Energy and Utilities have outperformed.  Importantly, this NDX pullback does not appear technically like it needs to move back to new lows, and this remains difficult to call for at this time.  Three days of weakness in  NDX, shown below, is now nearing an initial area of support which I feel should hold on this weakness.  The area at 12075 in NDX is initially important, while any pullback under should hold this ascending trendline and try to bounce further into early August.

Discretionary looks close to bottoming out vs. Staples
Source: Bloomberg

Consumer Discretionary is starting to show initial evidence of trying to bottom out vs Consumer Staples

The YTD decline in Retail, Autos, Homebuilders has taken a toll on Consumer Discretionary, and it’s been trending sharply lower vs. Consumer Staples in relative terms all year.

This might be changing, as momentum indicators like MACD show a bullish crossover in the ratio charts of  RCD vs.  RHS (Invesco’s Equal-weighted Consumer Discretionary ETF vs. Invesco’s Equal-weighted Consumer Staples ETF).

Downtrend lines extending lower since last November 2021 have been exceeded this month, providing some hope of a bottoming out in this ratio.

While a bottoming out often takes time, it’s thought that Discretionary likely represents a good risk/reward vs. Staples heading into the month of August.  This gels with my scenario of risk assets “making a stand” and turning higher in 2H 2022.

Discretionary looks close to bottoming out vs. Staples
Source:  Optuma

Walmart 8% decline puts further stress on Consumer Staples

Tuesday’s 8% pullback in  WMT has resulted in nearly a complete round-trip on  WMT’s advance from May lows.  This area at $117-119 is important support

Following a sharp break of nearly a one-year area of support near $133-5,  WMT rallied back to test this area into Monday’s close ahead of earnings which was strong resistance. (In technical analysis, meaningful support is often important when tested)

 WMT declined for nearly exactly one month before bottoming, and its rally from May lows was nearly exactly double in time, lasting two months before peaking out.

DeMark counter-trend exhaustion indicators like TD Sequential and TD Combo showed intra-day sells on Monday, giving warning about a possible reversal of trend.

 WMT represents over 4% of Consumer Staples which is resulting in  XLP 0.27%  underperforming in trading on Tuesday, lower by 1% as of 10:30 am EST on 7/26.

While  WMT’s profit warning might be thought as a harbinger of worse results to come by key Retail names like  TGT or  BBY 0.10% , this sub-industry looks very close to bottoming.

Discretionary looks close to bottoming out vs. Staples
Source:  MarketSmith

Retail is getting very close to support after falling 40% in 8 months

XRT momentum starting to improve with positive MACD crossover.

-DeMark weekly exhaustion could signal official “13 Countdown” within 2-3 weeks.

-While a minor new low cannot be ruled out into August, the risk/reward is growing very attractive to selectively position long in Retail.

-As can be seen below, this big decline is right near meaningful support based on historical trading history extending back since 2015.   (To repeat an important Technical analysis guideline, “Former resistance” often translates into strong support when tested”).

-In this case, this pullback should bottom out within a few weeks and momentum has provided the initial reason for optimism.

My favorite technical names to favor within Retail are  GPC -0.19% ,  DG 1.28% ,  AZO -0.70% ,  ORLY -0.30% ,  ULTA,  TJX,  TSCO and  AAP 0.42% .  See the weekly  XRT chart below.

Discretionary looks close to bottoming out vs. Staples
Source: TradingView

Disclosures (show)

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