Stock Exchange: Sizzling Summer Picks In Discretionary Spending

Our last Stock Exchange took a deep dive into the earnings season. If you missed it, a glance at your news will show that the key points remain relevant.

This Week — Consumer Discretionary Spending Heats Up

Our experts are picking up on this week’s theme in a big way. From luxurious cruises to hip new threads, our technical indicators suggest there’s something driving levels on consumer discretionary spending. Derek Benedet of seeitmarket.com had an interesting take. Let’s review some traditional causes behind increased spending:

While these points are accurate, Benedet goes on to note that the patterns of spending are very different. Traditional retailers may find difficulty attracting discretionary spending in a way that Tesla or Urban Outfitters may not. Let’s ask the experts:

Expert Picks from the Models

We’re joined again by one of our favorite guest experts on the stock exchange: Blue Harbinger (also known as Mark Hines). Blue Harbinger specializes in independent investment research, and we’re glad to have his thoughts this week. Let’s get down to it.

This week’s picks happen to center around luxury goods and discretionary spending.

Oscar

Oscar: This week, I bought into my custom Leisure, Lodge, and Cruise sector. PEJ is a close approximation. Stocks in the sector have been hanging around the same level since December, but there’s been enough volatility that I can see an upside. Check the 200-day moving average on the chart below.

Despite the up and down movement, the 200-day moving average has continued the steady rise past the compensation for November’s pop. Beyond the trend, a popup near the $43 mark in the next two to four weeks would provide a solid exit point for me.

Blue Harbinger: Unless you are aware of some short-term exploitable market-mispricing anomaly, I do NOT like this ETF. The PowerShares Dynamic Leisure & Entertainment ETF (PEJ) charges a fairly high fee, it has a high turnover ratio, its price can trade at unpredictable premiums and discounts to its net asset value.

O: A grim assessment, but I’ve got my own stocks in the same sector. Is that inherently wrong?

BH: Well this is based on a goofy, undiversified and concentrated index that seems to have been developed as a marketing ploy to get retail investors to invest in something that lines the pockets of the PowerShares people.

For starters, it only holds 30 stocks, and they’re concentrated in the Consumer Discretionary sector (79%) with the remaining holdings (21%) in Industrials. According to the PowerShares website, the index is described as follows.

The Intellidex Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value. The Underlying Intellidex Index is comprised of common stocks of 30 US leisure and entertainment companies. These are companies that are principally engaged in the design, production or distribution of goods or services in the leisure and entertainment industries.