Consumer Stocks Are a Bargain in This Market: Technical Strategist

Consumer Stocks Are a Bargain in This Market: Technical Strategist

Stock analysts and the American consumer have a predictable, tedious relationship. Analysts underestimate America's desire to buy stuff and shoppers buy more than expected. Lather. Rinse. Repeat.

The analysts' themes for retail in 2012 are an ailing consumer and the death of large footprint bricks and mortar stores. That being the case every Best Buy (BBY) news item triggers elegies for big box retail. Meanwhile Wal-Mart's (WMT) stock gaining more than 11% in May is ignored, as inconspicuous as an elephant under a throw rug to anyone willing to look.

Ryan Detrick of Schaeffer's Investment Research says Wall Street negativity creates values for traders willing to go against the grain. Detrick cites Michigan Consumer Sentiment readings at four year highs and the SPDR S&P Retail ETF (XRT) sporting double-digit gains for 2012 as evidence that the consumer is doing okay.

Schaeffer's follows a proprietary index of restaurant stocks, of which Detrick says 47% are rated "buy" or better; well below average in a system where "sells" are few and far between.

The divergence between data and sentiment creates the trade. "That's what we like to see," says Detrick, "negativity in the face of out performance."

Detrick loves it when analysts have more holds and sells than buys; if the shorts are getting involved it's all the better. His favorite consumer name fits the bill. Noting a 50% spike in short interest over the last month, Detrick is pounding the table on Visa (V).

Something's got to give. Either the analysts are wrong or consumer stocks are too high. As quick "tell" for signs the stocks are rolling over Detrick is using the aforementioned XRT.

"If it we were to break the lows that it made two Fridays ago that's a warning sign," he says. "We know the concerns are out there; we're not oblivious but with the upward price action it continues to make sense to accumulate shares."

Betting on consumer stocks over the last year has required a considerable leap of faith. As long as Wall Street analysts fail to take note of the rally, Ryan Detrick says there will still be time to jump on board.