Digging Deep Into Retail:
Discretionary overall has been mixed to soft, as evidenced by the ratio chart below. The XRT is looking to build on the impressive 4.3% weekly gain last week, and if it can muster a weekly advance this week it will be its first three week winning streak since this summer. In the retail arena the last month has seen some bifurcation, led by autos which we will discuss in the next paragraph, but the casual diner group has put up a nice showing with LOCO up 6% this short week so far AFTER last weeks move of more than 21%. We have the recent acquisition of SONC and well received earnings reports by SBUX and MCD. Lagging not surprisingly are groups that have been sickly for sometime, showing that trends are more likely to persist than they are to reverse. They include hotels, recreational products, furnishing and toys. A stock like CWH, is a great example and kind of ironic as the CEO who champions low debt on his former CNBC show, has his company loaded with it. It trades 60% off most recent 52 week highs.
One of the better acting groups in the discretionary space over the last month has been automobiles. The space to be frank is littered with weaklings, not just here with F now 29% off its most recent 52 week highs even after the last 2 weeks added a combined 10% (GM rose 15% the last 2 weeks and has a 4.2% dividend yield), but European names too. TTM and FCAU come to mind lower by 63 and 34% respectively from their own highs. It would be hard to have a car conversation without mentioning a former best and worst of breed that are now closely tracking each other, courtesy of the chart below. RACE looks as if it may have broke below a bearish head and shoulders trigger of 120 in a pattern dating back to this January. The measured move is 30 points, as it was stopped at the round 150 figure in June. Meanwhile TSLA, a cult teflon name which seems can not be held down for long regardless of the negative news, has ripped by a combined 32% the last 2 weeks.
Bottoms, as well as tops take time. Below is the chart of a laggard LB and how it appeared in our Consumer Report from 11/1. Generally I like to focus on strength but when names demonstrate solid bottoming formations they could be worth a look. L Brands could be a good example, could being the operative word. Even after a decent rally, gaining 6 of 9 weeks and two of which rose by double digits it still sits 46% off most recent 52 week highs. It formed a bullish inverse head and shoulders, somewhat unorthodox, and the stock was left relatively unscathed during a very tough month of October. The name is now gearing up for a 200 day SMA test to the upside, a line it has been swimming underneath since the first day of March. The measured move for the breakout is to 40, but remember measured moves are an estimation and many times leave investors selling winners to soon.