Don here...
Blake Young just exposed a major crack in the consumer discretionary rally. Tesla now accounts for 20% of the entire sector, and today's 2.6% bounce is dragging XLY higher while the actual consumer stocks are falling apart.
Remove Tesla from XLY and the sector looks like Nike. Nike just dropped 14% after missing earnings by nearly 30%.
RH told the same story. It gapped down and fell 22%.
Blake dug into the XLY chart using his monkey bar levels for April. The ETF gapped up into the overbought zone with a ceiling at $111.13. His modified Chaikin money flow indicator still shows net liquidation underneath the surface.
The bounce has no volume behind it. Blake sees short covering, not accumulation.
Amazon faces the same problem. More than half of Amazon's revenue comes from AWS. Calling it a consumer discretionary stock distorts what the sector is actually telling us about spending.
Blake walked through three bearish setups in tonight's video that take advantage of the disconnect:
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Tesla: Sell the call vertical above $395 for a $1.90 credit on a $5 wide spread. The probability of profit comes in at 64% against a required win rate of 62%, giving a 2% to 3% edge.
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Starbucks: Sell the $93/$94 call vertical for $0.45 credit. The required win rate is just 55% against a 64% probability, creating a 9% edge.
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Amazon: Sell the call vertical at $220 for $1.50 credit on a $5 wide spread. The setup is fairly priced, but a failure at the $215 target could accelerate the move lower.
Blake favors Tesla and Starbucks for the best reward to risk ratios. All three trades sell premium into a low volume bounce that his indicators say is running on fumes.
Click here to watch Blake break down the trade setups and the data behind his bearish consumer discretionary thesis
To your success,
Don Kaufman
Chief Market Strategist, TheoTRADE
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