Talking Numbers

This could be a canary in the coal mine for the market

This could be a canary in the coal mine for the market

This year's worst sector was among last year's biggest winners.

The S&P 500's consumer discretionary index – made up of automobile, media, retail, and hotel companies among others – is down nearly 4 percent so far in 2014.

The sector has become a holding pen for some of the worst-performing stocks in the entire index: Best Buy (down 39.3 percent year-to-date), Staples (down 23.8 percent), General Motors (down 16.4 percent), and (down 15.5 percent).

Things weren't always so bad for consumer discretionary stocks. Last year, the S&P index tracking them was up nearly 40 percent, nearly 11 percentage points higher than the overall S&P 500 index.

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Consumer discretionary stocks are a warning to the overall market, according to CNBC contributor Gina Sanchez, founder of Chantico Global.

"Discretionary is acting like a canary in the coal mine for the rest of the stock market," Sanchez said. "My expectation is that the consumer really is not that strong. And, so, while we're experiencing a recovery and that's clear, it's not a strong recovery and we have to keep that in mind."

Ari Wald, head of technical analysis at Oppenheimer & Co., says the real issue has to do with consumer discretionary stocks relative to the general market index.

"I think it keeps falling but I don't think it's… an omen for the overall market," Wald said. "I think it's just another sector rotation that this bull market has really been built on. What we're seeing is investors rotating out of the early cycle consumer names and into the later cycle energy names."

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Charting the relative value of the Consumer Discretionary Select Sector SPDR (the XLY) by dividing by the S&P 500, Wald noted the relative value of the XLY has been hit hard since December. What's more, its 50-day moving average recently fell below its 200-day moving average, a bearish technical indicator.
Wald said investors should stay away from consumer discretionary stocks because it could be in trouble, especially compared with other sectors.

"Even after this recent relative weakness, discretionary has still outpaced the next-best sector, industrials, by 40 percent over the last five years," Wald said. "So, I think that this is just really scratching the surface."

To see the full discussion on consumer discretionary stocks, with Sanchez on the fundamentals and Wald on the technicals, watch the video above.

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