The technical picture for the U.S. stock market just keeps getting worse.
Consumer discretionary stocks have become the fifth of the 10 broad market sectors to generate a bearish signal from the Reality Shares Advisors' Guard Indicator, solidifying a negative technical trend for the overall market. The Guard Score reflects how far each sector is from bear market territory and contributes to the Guard Indicator for the overall market, measured through a combination of price and volatility trends to gauge the market's direction. The Guard Score for the consumer discretionary sector has been moving lower for eight months, and the recent market turbulence accelerated the deterioration of its technical factors.
Specifically, the discretionary sector's volatility levels surpassed long-term averages by the market close on Jan. 25, and the short-term moving-average price trend for this sector fell below its long-term average on Feb. 3. Sector stalwarts such as Amazon and McDonald's have delivered strong returns over the past year (as of Feb. 3), but they have received no help from names such as Whirlpool, Wynn Resorts and Chipotle Mexican Grill, which have performed poorly during this time.
Source: Reality Shares Research
The Guard Indicator is fairly new, but we have back-tested it using historical market data and found that right now is only the third time in the last 15 years when it would have triggered a negative warning for the stock market.
Before now, the most recent negative period would have started on Jan. 10, 2008, just before the financial crisis, and lasted through July 14, 2009. During that period, the S&P 500 fell 34%. Before that, the Guard would have been negative beginning Sept. 15, 1999, and would have remained bearish for all but three trading days until May 22, 2003, which would have avoided a decline of 20.9% in the S&P 500 in the wake of the bursting of the dot-com bubble.