"Et Tu, Retail? Then Fall, S&P!"
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Anyone contemplating bearishness of stocks must understand one thing; you probably aren't going down without the retail sector. I have been following the retail sector for some time now. The way I figured it was this – we entered this crisis with an economy heavily dependent upon U.S. consumer spending habits. Therefore, one should be able to somewhat gage economic activity by looking at the prospects on the charts of the retail sector. Unlike the financial sector, many retail indices remain in uptrends. But one particular retail chart is showing signs of stress. It may prove beneficial to keep an eye on it.
Before we go any further, I know some of you bears are thinking – well, the retail sector has done a phenomenal job of protecting share prices during this crisis and has been one of the bright spots in an otherwise lackluster market. But have you looked at any of these retail charts? They are very impressive to me, even though I am also extremely skeptical of this cyclical market rebound.
I want to show you a couple that are very bullish charts, and then finish by showing the one that seems vulnerable. The first chart below is the Dow Jones U.S. Retailers Broadline Index. This chart had a textbook inverted head-and-shoulders bottom pattern in place back in 2010, and I'll be darned if the pattern didn't go to completion in the face of the worst financial crisis in 80 years. The index traded all-time highs this week.
Another bullish retail index is the Dow Jones U.S. Apparel Index. You can clearly see this market's similar rebound rally since '08. It made its all-time high back in April of this year. If you didn't know better, this chart would also have you convinced we are in the midst of a rip-roaring bull market.
On the other hand, although the Dow Jones U.S. Retailers Specialty Index (ex Drug & Apparel) is also a bullish trending chart, I do have a sense that it may be vulnerable. Companies that comprise this index tend to be specialty stores that occupy their special niche within the economy, and include the likes of Barnes and Noble, Overstock.com and Golfsmith.
You can see that although this index also made its all-time high somewhat recently, it rests not far off of trend-channel support. I think this chart may be a key one to watch. If trend-line support is broken, it may be the tip of the retail iceberg. Then the S&P may say, "Et Tu, Retail?"
Chief Investment Strategist
Preferred Planning Concepts
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Des Plaines, IL 60018
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