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Bargain hunters in discretionary stocks were on the money

It’s been a good few days for the ASX 200 index and bargain hunting in consumer discretionary stocks has been one of the key drivers. The 200 index is up 1.8% from its low last Thursday. The consumer discretionary sector is up 3.4% over the same period.

This morning’s release of Westpac’s monthly Consumer Sentiment index suggests bargain hunters may have been on the money. Pessimism following the poor retail sales data last week looks like it created an opportunity.

The Sentiment Index returned to its long run average level of 101.4 in October. This follows 10 consecutive readings below 100 where pessimists outnumbered optimists.

Expectations about both the economy and family finances for the year ahead have improved.  There were also gains in the sub index measuring views on whether now is a good time to buy a major household item.

Westpac noted that concerns over rising interest rates have eased while the strong improvement in the job market was also helping. The rise in confidence was particularly strong for trade workers indicating ongoing strength in residential construction.

While this improvement is welcome, it comes against an overall background of low wage growth and high household debt that may keep improvements in consumer spending to moderate levels.

After a good week, the Australia 200 index is now approaching chart resistance. Short term traders may soon be thinking in terms of profit taking and position reversal 

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