Worries about the likelihood of an upcoming recession have dominated headlines over the past several weeks, and as a result, prices in many sectors have moved lower. One group that seems to have been able to counter the sell-off is consumer discretionary stocks. Fundamentally, the divergence between what is happening in the consumer discretionary sector and the broad market suggests that the macro trend may not be quite as bleak as the media has made it seem.
Vanguard Consumer Discretionary ETF (VCR)
Many active traders turn to niche exchange-traded products such as the Vanguard Consumer Discretionary ETF (VCR) when they want to track the performance of consumer discretionary companies. As you can see from the chart, the price has recently moved off its high and has found support near its 200-day moving average. It is interesting to note how this influential level of support also coincides with an ascending trendline and the psychological support level near $170. The sharp bounce and uptick in the moving average convergence divergence (MACD) indicator suggest that the bulls are in control of the momentum and that prices could be poised to make a move higher from here.
Amazon.com, Inc. (AMZN)
There are few companies in the world that do a better job capitalizing on consumer spending behaviors and patterns than Amazon.com, Inc. (AMZN) Many passive investors have found themselves on the sidelines over the years as the price of the stock has steadily moved higher. Pullbacks are few and far between, but the recent retracement toward the combined support of its 200-day moving average and horizontal trendline could be providing the buying opportunity that many have been waiting for. As you can see from the price action over the past couple of weeks, the bulls seem to have stepped in and halted the decline. Levels near $1,800 are providing long-term traders with an interesting risk/reward setup, and it would be surprising to see the price head back toward the highs above $2,000.
The Home Depot, Inc. (HD)
Bullish comments from the management of The Home Depot, Inc. (HD) after strong second quarter earnings could be used as confirmation that the sector is stronger than many are set to believe. Taking a look at the chart below, you can see that the strong bounce off of the trendline on higher-than-average volume clearly puts the momentum in the favor of the bulls. Based on this recent price action, we'd expect the uptrend to continue, and many long-term traders will likely protect against a shift in fundamentals by placing stop-loss orders below the dotted trendline near $200 or the 200-day moving average ($190.18), depending on risk tolerance.
The Bottom Line
Given the volatility in the markets over the past several weeks, many traders would expect that consumer discretionary stocks would be trending lower alongside many of the other sectors. However, based on the patterns discussed above, it appears as though this is one of the segments that is moving counter to the trend and could actually be poised for a sharp move higher heading toward the end of 2019.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.