Book Profits in Consumer Discretionary Stocks

NEW YORK (TheStreet) -- The consumer discretionary sector includes companies that offer goods and services like TV services, dining out, online purchases and home-improvement products that people buy only if they can afford them.

This morning we learned that retail sales in July were stronger than expected with a gain of 0.8%. Excluding autos, retail sales rose 0.8%, and, excluding autos and gasoline, they rose 0.9%, also better than expected. This will likely give consumer discretionary stocks a boost in today's trading.

Despite weak consumer confidence since the beginning of the "Great Credit Crunch" in late 2007, several stocks in this sector have set all-time highs or multi-year highs since May. As such, Investors should consider booking profits in some of these stocks.

My benchmark for the sector is the Consumer Discretionary Sector SPDR Fund (XLY), which contains 81 stocks. I will be focusing on the top 17 stocks in the fund by index weighting, each of which is 2% or higher.

The consumer discretionary sector is undervalued by 1.3%, according to ValuEngine, which is as neutral as you can get based on fundamentals. XLY traded to an all-time high of $46.27 on May 1 after trading as low as $15.85 in March 2009, a gain of 191.9%, which is reason enough to consider booking profits.

The daily chart shows that XLY ($44.64) is positive with rising momentum (12x3x3 daily slow stochastic) reading with XLY above its 21-day, 50-day and 200-day simple moving averages at $43.92, $43.54 and $42.28, respectively. My semiannual and annual value levels lag at $39.91 and $36.46 with a weekly pivot at $44.60 and monthly and quarterly risky levels at $47.52 and $50.12.

Source: Thomson Reuters

The below table shows data from ValuEngine.com covering 17 of the 81 components of the XLY listed from top to bottom by percentage of index weight as of August 10.

Reading the Table

OV/UN Valued -- The stocks with a red number are undervalued by the percentage shown. Those with a black number are overvalued by that percentage, according to ValuEngine.

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