With major stock markets on fire, both here and abroad, what’s left to buy? In order for stocks to continue higher at this pace, new money has to flow into the markets. And, that is exactly what we think will happen. A week ago, Ukarlewitz wrote the following:
Despite the persistent rise in US equities, money has been consistently flowing out of equity mutual funds and ETFs since peaking in March. In fact, net outflows are well over $60b during this period and were a further $10b in the past week alone. What is unusual is that index peaks (red line) have previously been largely coincident with fund flow peaks (blue line). Residual investor pessimism will often cause fund flows to remain negative even after the index has again begun to rise. This time has been different and while there is no history to rely upon, the most likely interpretation is that investors are skeptical of the continuing bull market (from ICI).
Since Joe and Mary investor usually gets it wrong more often than not, it stands to reason that they will once again chase the market higher as the FOMO (Fear of Missing Out) trade kicks into high gear.
As long as large block trades, place by institutions, persist below price action, the markets are headed higher. These trades now represent support below.
Consumer Discretionary Stocks
We are looking for stocks in bullish trends that have pulled back to support or stocks that have taken a respite. Both should show a consolidation period, in a bullish trend.
XLY daily chart shows price moving to the top of its range.
XLY weekly shows a different picture and one which could continue higher. Most sectors show a continuation of the current trend. XLY is the only sector which shows recent consolidation. Any uptick in consumer spending will likely result in institutions buying the breakout in XLY.
If data suggest a contraction in spending, then we could push back down into this weekly pattern.
Amazon is the elephant in the room. With bullish options flow detected in the OCT and NOV calls, targeting 1000, it makes sense that AMZN might continue higher into the holiday season.
Consider a short-term swing into the 1000 target level, as RSI suggests a continuation of the prevailing trend. MACD crossed and the price action is pushing higher on above-average volume.
Apple is another candidate. It too is considered discretionary while also straddling the technology sector. For this exercise, consumer discretionary will help the bullish case.
With non-farm payroll data pointing to a decrease of 33k in September, we will likely see some weakness and some profit taking this morning. Therefore, we’ll wait for the markets to settle down first, before considering any new trades today.