Staples Intact:

They saying goes in markets, as in life, it is not where you start but where you finish. Overall the benchmarks have began the last three weeks in fine fashion on Mondays. The S&P 500 rallied 1.5, 1.1 and .2% on 11/26, 12/3 and 12/10 (this past Monday recorded a bullish hammer candle off the round 2600 number). By the end of the week, the last 2 CLOSED dead on their lows. Hallmark bearish action as trade starts strong and ends wobbly, and the prevailing feeling among the majority of investors is very defensive in nature. The consumer staples on a three month look back period for example, are just one of three major S&P sectors that are positive (other two are utilities and real estate). Below is the ratio chart comparing the staples to the S&P 500 and one does not need to be a rocket scientist to see capital is being deployed to the space. Best in breed names include CHD, PG and CLX, which are all just a stones throw from all time highs. Suspect leadership, but reinforces the notion that there is usually always a bull market somewhere.  

Retail Reeling:

In our 12/4 Consumer Report we examined the possibility of a breakdown in the relationship between the XRT and the S&P 500. The ratio chart below shows that potential did follow through to the downside, as a bearish head and shoulders pattern was carved out. From a pure performance standpoint the XRT is now in bear market mode 21% off its most recent 52 week highs, nearly doubling the softness seen in the S&P 500 as it trades 12% off its own highs. This week it added onto the week ending 12/7’s 6.6% drop slumping another 3% (the XLY slipped up just 1% this week). There is some strong strength within the the XRT, as auto part plays AZO and ORLY are trading just 3 and 4% off most recent ALL time highs. They are the second and fourth largest components in the ETF, and the biggest name in the fund NTRI was the subject to M&A activity as it was bought by TVTY. The XRT was not affected as much by the strength in these aforementioned names as the weightings are very similar with no stock making up more than 1.75%. Contrast that with AMZN in the XLY making up 21.7%.


Last week we highlighted that there was no real place to hide in retail, as is the case in almost every sector at the moment. Whether space was deemed defensive, case in point COST which undercut its 200 day SMA for the first time in 14 months following an ill received earnings report Friday, or BIG as a safe discount play which is now 56% off most recent 52 week highs, the selling has been indiscriminate. Below is an example of a luxury play and the chart of RH and precisely how it was presented in our Consumer Report from 12/11. A large body filled in black candlestick on 12/4 was foreshadowing into some potential weakness and it did demonstrate that this week falling more than 7.5% (to be fair it did advance 18% the previous week). A current look at the chart shows it is now 2 handles from successfully filling in a gap from the 12/3 session and it would be prudent to reduce ones short position. 

This article requires a Chartsmarter membership. Please click here to join.