Tue, February 27, 2024 | 7:19PM ET

Consumer Discretionary clawing back & worth watching

Mark L. Newton, CMT ^AC

Head of Technical Strategy

Key Takeaways

Trend in SPX, DJIA, NASDAQ still difficult to fade in the short run

Fed expectations look to be finally aligning with Dot-plot

Consumer Discretionary looks to be strengthening and this outperformance is noteworthy

Consumer Discretionary clawing back & worth watching

Equity trends show no evidence of wavering – SPX trends remain positive and prices have pushed through the Presidents’ Day weekend with little to no real evidence of trend failure. Despite some minor backing and filling in Technology, other sectors have rallied to “pick up the slack” which is thought to be a positive for the gradual broadening out in US Equities. While the uptrend in both US Dollar and US Treasury yields has stalled a bit in recent weeks, there hasn’t been evidence of either turning back lower. At present, SPX trends likely extend higher into mid-March, and SPX would require a break of last week’s lows (SPX-4946) for me to have even minor concern about additional weakness.

With just a couple days left to February, SPX might log its best February since 2015, with returns thus far through 2/27 at +4.62%. However, 2015 was a year that January was lower -(~3.0%) and one has to go back to the late ’90’s (1998) to find an equivalent level of performance when January was also positive.

Overall, SPX is in a sweet-spot right now, as sectors like Financials, Industrials, Healthcare, and today’s outperformer (Consumer Discretionary) have been rallying to join Technology in strengthening. No evidence of trend damage is apparent, and complacency does not seem to be a factor right now, sentiment-wise.

Until/unless last week’s lows are challenged (4946-SPX), which I don’t think will happen right away, SPX very well can continue its rise into mid-March without much trouble, technically. While I’m on the lookout for evidence of DeMark based exhaustion and/or sector deterioration that might prove problematic, at present, we’re seeing the opposite, and the cyclical weakness possibility for mid-February has come and gone and now leading assets back higher, both Equities and also cryptocurrencies. Until SPX, DJIA, NDX show evidence of waning breadth, I believe it’s right to be long and still expect higher prices to cap off what’s been a stellar February.

Equal-weighted S&P 500 closing in on all-time highs, but still lies shy at this point

Technically, it continues to be worth noting that despite the broad-based rally in US stocks in recent weeks, Equal-weighted S&P 500 is not yet back at new all-time highs.

Invesco’s Equal-weighted S&P 500 has rallied to just below former peaks at $164.90. This area could be resistance into March but ultimately does not look like a serious hurdle for 2024.

When US Treasury yields start to turn back lower, which might be an April-August type acceleration lower, I expect a larger broad-based rally in US Stocks.

At present, it is worth paying attention to Value Line Arithmetic/Geometric indices and Equal-weighted S&P 500 ETF (RSP) for any evidence of a push back to new all-time highs.

Consumer Discretionary vs. S&P is slowly but surely making strides in turning higher. Investors should watch for evidence of a breakout

Discretionary is making good strides lately, with the Equal-weighted Invesco Consumer Discretionary/Equal-weighted S&P ETF ratio (RCD/RSP) moving to multi-week highs as stocks like AZO CCL CZR HAS NCLS ORLY VFC TSCO are all showing above-avg gains in today’s trading.

However, on a larger scale, there hasn’t yet been a material breakout to suggest intermediate-term outperformance in Consumer Discretionary. However, I do suspect this happens in 2024, and once this larger downtrend is broken in the relative ratio of RCD to RSP, we’ll see some outsized relative strength in Discretionary names as this sector will begin to outperform in the near-term, technically.

It’s early to overweight, but I’ll be watching and this Discretionary sector certainly has some names of interest. As many know, I favor the Homebuilders like LEN, PHM and DHI along with AMZN and DPZ (on my UPTICKS list), but also feel like the Casinos and Cruise-liners are attractive stocks for mean reversion outperformance for 2024. I like CCL’s move today for example technically, which is exceeding a 2 month downtrend and this might jumpstart this stock in the short run.

Below is the ratio of Discretionary to S&P 500, both shown in Equal-weighted terms

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Mark L. Newton, CMT, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research report. There is a possibility that we will from time to time have long or short positions in, and buy or sell, the securities or derivatives, if any, referred to in this research.

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