Consumer Discretionary showing leadership potential

The All Ordinaries index was up 0.14% for the week ending 5 April 2019. The index ended the week 2.6% above its 200 DMA, after a roller coaster of a week that saw it close above the critical 6,350 level before backing away sharply over the next two days to finish the week mostly flat.

For the last six weeks, the index has tracked sideways in a narrow range. Our expectation is for more of the same until there is a clear break in one direction or the other. While that might sound tautological, it is not. A clear break will signal an end to the current trading range and indicate the likely direction of the next move.

Our business is not to predict but only to observe and act when the probability of success is in our favour.

Of the 493 stocks currently comprising the index (and for which we collect data), 295 of these (60%) ended the week above their respective 100 DMAs. This metric was flat for the week.  Two hundred seventy-one stocks were up for the week, while 222 ended the week flat or down. Two hundred and fifty-three shares finished the week within 20% of their 52-week highs, with 68 of those within 5% of 52-week highs.

Real Estate, Utilities and Energy stocks in aggregate were the worst performing sectors for the week, while large cap Materials and Information Technology, as well as Consumer Discretionary stocks, provided the index with positive performance during the week.    

Consumer Discretionary

The Consumer Discretionary sector provided some strong performance at both the large-cap end of the spectrum including names such as Aristocrat Leisure (ALL), Tabcorp (TAH) and Flight Centre (FLT) and the smaller cap end including Vita Group (VTG), Redbubble (RBL) , Myer (MYR) and G8 Education (GEM).

Many of the stocks in this sector experienced significant sell-offs over the last few months of 2018, and it’s out of the rubble of this correction that it’s possible that some new leaders will emerge.

Aristocrat Leisure (ALL)

Aristocrat sold off more than 35% during the 2nd half of last year, culminating in a selling climax in late November and early December, which was the largest sell-off that the stock has experienced since the beginning of its major uptrend in late 2011.  Since then the stock seems to have established a new trading range between $23 and $26 and any sign of strength above this level could mark the resumption of the uptrend.

Aristocrat Leisure (ALL) weekly chart

Collins Foods (CKF)

Collins Foods had been in a trading range for nearly two years before finally breaking out in October 2018. The stock pulled back during the brief market correction at the end of last year before showing its strength in January to lift itself back up above the trading range and to within 1% of its all-time high.

There are multiple reasons for the strong demand for the stock, with Collins Foods growing revenue and earnings strongly in its KFC Australia business and with a healthy pipeline of future potential growth ahead of it from the Taco Bell roll out.

Collins Foods (CKF) weekly chart