Consumer Weakness?

The S&P 500 Consumer Discretionary Sector seems to be going through a tough period. Recent concerns about the U.S. consumer being able to sustain the buying activity in 2006 maybe coming to fruition.

The homes sales data of as lately seems to suggest that fewer people are buying houses, even though interests are considerably lower from previous years. Housing starts have increased in Dec. 2005 to 1.9 (mln) from 2.12 (mln) in Nov. 2005. Yet the forecast for New Home sales for Dec. 2005 are expected to decrease from the Nov. 2005 number. While it a seasonally slow time for home sales, we must be concerned about this possible setback to our economy. Over the last couple of years, home owners have sought refinancing as a means to access more money. At lower interest rates, this makes sense for those who have had high mortgage rates. Yet, while homeowners begin to take on more debt, they might not have money to sustain their discretionary buying. Money being borrowed against the cost of homes to pay for new cars, home remodeling, and discretionary spending (buying electronics, luxury goods, etc.)will take its toll on the US public. Money will be conserved for staples such as gas, food, etc.

The chart above suggest that the S&P Discretionary Sector might be headed lower. Resistance might be an issue as the sector begins to consolidate. Price studies have shown that the sector's 21 day slow stochastic is weakening, and the moving averages are beginning to tighten. More time will be needed to determine the actual course of the economy.  ¶ 10:15:00 AM