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Continue to Book Profits in Consumer Discretionary Stocks

Stocks in this article: XLY AMZN CMCSA DIS NWS

NEW YORK ( TheStreet) -- The consumer discretionary sector is now overvalued by 8.5%, according to my Web site,

This sector was 1.3% undervalued when I wrote " Book Profits in Consumer Discretionary Stocks" on Aug. 14.

Technically, my benchmark for this sector is the Consumer Discretionary Sector SPDR Fund (XLY), and this ETF became overbought on its weekly chart beginning the week of Sept. 7.

Since then, we learned that consumer confidence as reported by the Conference Board came in with a reading of 60.6, which was well below the consensus estimate of 65.7.

This was the lowest reading since November 2011. Keep in mind that the 90 to 110 range is a neutral reading for this measure.

With this continued weak reading, consumer discretionary stocks should not have stretched to multiyear highs, which they did recently.

Another reason for caution was the latest reading on consumer credit, which declined for the first time in almost a year. Consumer credit fell by $3.28 billion. Wall Street economists were forecasting a rise of $9.1 billion. Consumers reduced credit card debt, which is a troubling sign for the economy.

Another economic warning was provided by FedEx (FDX) before the market opened Tuesday. The company reduced its fiscal-year profit forecast significantly, citing the stalling global economy.

The daily chart for XLY ($47.30 vs. $44.64 on Aug. 14) is positive, but it has an overbought momentum reading (12x3x3 daily slow stochastic), and it's above its 21-day, 50-day and 200-day simple moving averages at $46.09, $44.87 and $43.22, respectively.

My semiannual and annual value levels lag at $39.91 and $36.46, respectively, with annual and weekly pivots at $43.17 and $47.76, respectively, and monthly and quarterly risky levels at $49.14 and $50.12, respectively.

Source: Thomson Reuters

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