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May 13 Market Wrap

Posted on May 13, 2009 by Adam

Stocks finished the day near their lows on weaker than expected retail numbers. This markets the third consecutive down day. We haven’t seen that since the beginning of March.

Stocks, after breaking through 900, seem determined to test the 875 level, which it punched through after a lot of testing late last month. Continued weakness in tech, financials, and energy certainly didn’t help, but the big bearish story over the last two days has been consumer discretionary.

Discretionary stocks are showing incredible weakness, as market participants rotate into more defensive stocks and take profits after such a good run. I happened to be short some consumer discretionary names ahead of this move, which has helped to soften the blow on my long-biased portfolio, but I may look to re-balance by taking profits on those stocks and entering better performing longs over the next few days.

If the 875 level holds, the overall trend of the rally should stay intact. However, if this level is broken, stocks could be due for an extended pullback through the summer.

Consumer discretionary names like CAKE have been a good short this week.