Recently, the markets have experienced an interesting scenario in which falling stock prices have occurred along with a decline in the U.S. dollar. This is interesting because these markets have had an inverse relationship over the past several weeks. The most likely reason for this relationship decoupling recently is that market sentiment has shifted from a fear of inflation to one of deflation as employment data and consumer optimism deteriorate. In this type of environment, consumer discretionary stocks often underperform as investors shy away from stocks that depend on excess money. In looking at the recreational vehicles group, it seems that they are confirming this theory.
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Arctic Cat (Nasdaq:ACAT) designs, engineers, manufactures and markets snowmobiles and all-terrain vehicles (ATVs) under the Arctic Cat brand name, as well as related parts, garments and accessories. This stock has been under pressure since April after rallying sharply to new recovery highs. It fell back sharply after reaching new highs, and began to consolidate near its 50-day moving average. It then proceeded to slice through a trendline that had been supporting it on recent pullbacks and ultimately set a lower low as it dropped toward its 200-day moving average. It is currently attempting to consolidate at this level, but is showing weakness through its inability to hurdle the $10 area that was formerly acting as support. If ACAT can't reclaim this level it could continue heading lower into the $7 area.
Polaris Industries (NYSE:PII) designs, engineers and manufactures off-road vehicles. While PII has held up better than ACAT, it just recently fell below some support levels. PII appeared to be in a healthy consolidation as it traded sideways following a rally in March and early April. The low $54 area was acting as support on recent pullbacks, but PII recently undercut this level. If PII can't trade back above this level it could lead to increased selling pressure as buyers over the past few months remain under water.
Marine Products Corporation (NYSE:MPX), through its subsidiaries, engages in the design, manufacture and sale of recreational fiberglass powerboats in the sport boat, deck boat, cruiser, sport yacht and sport fishing markets. Much like PII, MPX was holding up well as it attempted to consolidate through the recent market weakness. However, it also recently broke down under an important support level. MPX provided a clue in June that all was not well, as it set a lower high near $7 after its bounce from the $6 level. This revealed weakness as it failed to rally to the top of the range near $8. On the subsequent trip back down to $6, MPX failed to hold support and is now in danger of much lower prices. (For more, see Peak And Trough Analysis.)
Harley-Davidson (NYSE:HOG), which is famous for its heavyweight motorcycles, has been in a death spiral over the past few weeks. HOG appeared to be in good shape through the spring as it rallied from a low of $22 in February to a high near $36 per share. However, it has given the entire rally back and is currently trading near the $22 level. In fact, HOG is in danger of dropping below this level, which could increase the amount of selling in this stock.
If the economy is indeed weakening again, it's easy to see why the market for recreational vehicles such as snowmobiles and ATVs appears to be going soft as well. While the fears in the market may or may not be overblown, the fact remains that investors are currently fleeing from these stocks. Traders should be very cautious if they are long these names as they recently undercut important levels. In fact, they may be providing solid short selling opportunities in the near future.
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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.