Continue to Book Profits in Consumer Discretionary Stocks

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

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

The above table shows data from www.ValuEngine.com covering 10 components of the Consumer Discretionary Sector SPDR.

Reading the Table

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

VE Rating: A "1-Engine" rating is a strong sell, a "2-Engine" rating is a sell, a "3-Engine" rating is a hold, a "4-Engine" rating is a buy and a "5-Engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast One-Year Return: Stocks with a red number are projected to decline by that percentage over the next twelve months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: the price at which to enter a good-'til-cancelled limit order to buy on weakness. The letters mean: W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: the price at which to enter a GTC limit order to sell on strength.

Amazon.com ( AMZN) ($258.75 vs. $232.44 on Aug. 14) set an all-time high at $264.11 on Sept. 14. AMZN has recently been downgraded to hold from buy, according to ValuEngine. It has a ridiculous price-to-earnings ratio and is well above its 200-day SMA at $207.92. Employ a "buy and trade" strategy between the value level and risky level.

Comcast ( CMCSA) ($34.85 vs. $34.55 on Aug. 14) set an all-time high at $35.45 on Sept. 14. CMCSA is rated a buy, has an elevated P/E ratio and is well above its 200-day SMA at $29.51. Employ a "buy and trade" strategy between the value level and risky level.

Disney ( DIS) ($51.90 vs. $49.86 on Aug. 14) set an all-time high at $52.75 on Sept. 14. DIS is rated a buy, has a so-so P/E ratio and is well above its 200-day SMA at $44.12. Employ a "buy and trade" strategy between the value level and risky level.

Directv ( DTV) ($53.44 vs. $52.10 on Aug. 14) set an all-time high at $54.61 on Sept. 14. DTV is rated a buy, has a favorable P/E ratio and is well above its 200-day SMA at $47.37. If you can sell strength to this month's pivot at $54.36, do so, then employ a "buy and trade" strategy between the value level and risky level.

Home Depot ( HD) ($58.86 vs. 52.82 on Sept. 14) set an all-time high at $59.71 on Sept. 14. HD is rated a strong buy, has an elevated P/E ratio and is well above its 200-day SMA at $49.36. Employ a "buy and trade" strategy between the value level and risky level.

News Corp. ( NWSA) ($24.48 vs. $23.27 on Aug. 14) set a multiyear high at $24.80 on Sept. 14. NWSA has recently been downgraded to buy from strong buy, has so-so P/E ratio and is well above its 200-day SMA at $20.30. Employ a "buy and trade" strategy between the value level and risky level.

Target ( TGT) ($64.26 vs. $62.51 on Aug. 14) set a multiyear high at $65.10 on Sept. 13. TGT is rated a buy, has a reasonable P/E ratio and is well above its 200-day SMA at $57.06. Employ a "buy and trade" strategy between the value level and risky level.

TJX Companies ( TJX) ($45.34 vs. $44.24 on Aug. 14) set an all-time high at $46.67 on Aug. 29. TJX is rated a buy, has an elevated P/E ratio and is well above its 200-day SMA at $39.61. Employ a "buy and trade" strategy between the value level and risky level.

Time Warner Cable ( TWC) ($92.56 vs. $89.75 on Aug. 14) set a multiyear high at $93.49 on Sept. 14. TWC is rated a buy, has a so-so P/E ratio and is well above its 200-day SMA at $78.27. Employ a "buy and trade" strategy between the value level and risky level.

Time Warner ( TWX) ($44.87 vs. $42.67 on Aug. 14) set a multiyear high at $45.07 on Sept. 14. TWX is rated a buy, has a reasonable P/E ratio and is well above its 200-day SMA at $37.60. Employ a "buy and trade" strategy between the value level and risky level.

Eight of the stocks profiled today are overvalued fundamentally, with DTV and TWX trading just below their fair-value prices. All 10 have overbought weekly chart profiles. All 10 have traded higher by 8.1% (AMZN) to 74.4% (HD) over the past 12 months. They have P/E ratios between 13.2 (DTV) and 390.2 (AMZN). In my judgment, when these stocks turn lower the risk is to the 200-day simple moving averages.

At the time of publication, Suttmeier held no positions in securities mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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