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Low Expectations in the Consumer Space

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You wanna catch falling knives, just join the circus!

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There has been a lot of talk (incessant, really) about the consumer being tapped out. High and rising debt, income that's not keeping pace, a reduced wealth effect from a down stock market and cooling housing market, high energy costs...it's all adding up to paint a dour picture.

But have investors already discounted the worst? There's no easy answer to that, but we can make some educated guesses by looking at underlying data regarding the consumer discretionary sector.

The chart below highlights several measures I watch daily for the Select SPDR Consumer Discretionary fund, XLY. What we see is that the underlying components have taken a beating, with barely 20% of components above their 50-day average and 30% above their 200-day, up slightly from a few days ago. That is on a par with what we saw at past lows in the group.

New 52-highs are nonexistent, while new lows recently spiked to more than 10% of all components. Again, this is comparable to other lows.

Short interest exploded higher by 63% this month, going from 7.3 million shares to over 12 million.

Lastly, assets in the Rydex Retailing fund have sunk to under $10 million, one of the lowest amounts since the fund was introduced - there is no interest from traders in being involved in the group.

I don't know about what will be, but I do know about what is, and "what is" is a washed-out group that has rallied in previous years when it has gotten this bad.

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No positions in stocks mentioned.

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