My firm's process to evaluate stocks is very simple. First, we track how stocks are doing over the past 100 days from a relative strength measure. Second, we track the level of short selling. Third, we combine the two and rank on a stock, group and sector basis.
The overall rank simply tells us how the market is voting in favor or against a stock, group or sector. What does our work tell us about the consumer?
First, no one is heavily short the consumer sectors that include Household Products, Retailing, Food Beverage & Tobacco, Consumer Durables/Apparel, Consumer Services and Food & Staples Retailing. The previous order is ranked from the strongest to weakest in terms of my firm's overall sector ranks.
There are no sectors that rank a buy in the upper 33% of our rankings. Many are are equal weight or neutral and several are avoid. The avoids include Consumer Durable/Apparel, Consumer Services and Food & Staples Retailing. It is interesting that Food & Staples Retailing is an avoid given it is defensive in nature.
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This alerts us to the fact that more "growthy" names are being bid up by investors. When the market falls apart, expect to see Food & Staples Retailing improve. Stocks that are weak in our work meaning their technicals ranks are weak and the short selling is light include Walgreen (WAG), CVS (CVS), Sysco (SYY), Kroger (KR), Safeway (SWY) and Wal-Mart (WMT). The most interesting name on this list is Wal-mart. This name has rallied on the trade down by the consumer but its recent weakness could be telling us that game is over.
The net-net is that the lack of sectors with a buy confirms the perception that the consumer is dead. What's interesting is that the majority of consumer sectors are neutral and could either roll over from here or improve. Clearly, retail is at a nexus and this confirms what Prof. Krueger and Todd wrote about yesterday on the Buzz & Banter.