Is This Strong-Performing Sector About to Roll Over?

On Thursday morning, the Bureau of Labor Statistics released the June employment report. The headline number was weak, as the U.S. economy created just 57,000 new jobs. Analysts were looking for about double that figure.

The revisions of previous reports also pointed to weaker job growth. The May report was downgraded from 172,000 to 129,000, and the April report was also revised lower, from 179,000 to 148,000.

An Inhospitable Data Point

One notable piece of information was the sharp drop in hiring in the hospitality sector, which shed 61,000 jobs. Any one month can produce an anomaly, but this sector has lost a net 28,000 jobs over the past three months.

This points to potential weakness in the hospitality sector. Hotel stocks have enjoyed a great run, but the charts of the biggest names in the industry appear ready to roll over.

Marriott International

Last year, with Marriott (MAR) trading at $264, we placed a price target of $340 on the stock. Today it trades at $370, after briefly climbing above $400 last month.

Marriott has fallen below its 50-day moving average (blue). Notably, all of the major indexes are trading above that key indicator. I consider this a sign of relative weakness, especially since Marriott reached an all-time high less than three weeks ago.

I don’t want to overreact to what I perceive as bad news in this sector via the jobs report. At the same time, we’re sitting on a gain of 40% and the stock appears to be rolling over. As a compromise, we’re closing half of our position in Marriott.

Hyatt Hotels Corp

One year ago, with the stock trading at $133, we projected Hyatt Hotels (H) to $175. Our bullish stance was due to a cup-and-handle formation.

That stock climbed to over $200 per share, thanks to a subsequent cup and handle (shaded yellow). Hyatt has gained about 32% over the past year, but now that stock appears tired.

Hyatt is scheduled to report earnings next week, before the opening bell on July 10. Longs might want to consider trimming this position prior to earnings.

Intercontinental Hotels Group

Intercontinental Hotels Group (IHG) has been the best-performing name out of the stocks we follow in this sector, racking up a 52% gain over the past 12 months.

This stock has pulled back slightly over the past few weeks, but not as much as Marriott and Hyatt. However, I’m not considering buying IHG, as the sector as a whole appears to be losing strength.

Bottom Line

I’m not bailing out hotel stocks completely, but I’m trimming my largest position by half. I’m curious to see how the sector reacts to Hyatt’s earnings next week before considering my next move.

At the time of publication, Ponsi was long MAR.