Consumer discretionary stocks – and related ETFs, like the XLY – may have rocketed in recent months on a pullback in oil.
But the good times may be coming to an end. The sector is overvalued, as compared to the S&P 500 on many metrics, including price/earnings and price/book.
And consumers aren’t very happy these days, sending consumer spending numbers down 0.2% in January, as savings rates jumped. Retail sales were down 0.8%, far worse than 0.4% expectations. Americans were more eager to save the money they saved on cheaper gas than spend it.
For the XLY to trade at such toppy levels with overbought technical reads just on MACD, RSI and MFI, is a bit ridiculous. It needs to pull back some time soon.
Consider buying to open the XLY June 2015 76 put up to $3.
Also, going forward we will be implementing a -40% stop loss on all trades.
Good Investing,
Ian L. Cooper
Inside Value Trader