As the New Year takes shape we like to look at seasonality trends for potential clues of what the future may hold. Are consumers feeling the heat, with a second big name issuing a warning today, of course that being Samsung?. Last week it was AAPL and is news so bad now that it is good? In the overall markets we are seeing a strong, rapid disappearance of bears as the indexes power northward. We witnessed good reactions to the, powerhouse of Europe, Germany showing soft PMI. This is classic bull market behavior as bad news is not interpreted in PRICES. We could be undergoing a huge short covering rally, or is it the beginning of a new bull? That is a distinct possibility as bear markets tend to be forceful, albeit short in duration. Getting back to seasonality a look at the chart below surprised me as retail, basically is a coin toss pertaining to the direction in the XRT. None of the first 5 months of the year the last 4 have a higher probability of CLOSING higher than where it started. This of course is on a collective basis, but search for individual leaders, we highlight many in this Report, and deploy your capital there with good risk management.
Steady, Happy Relationship?
Traditional relationships when comparing market components have been monitored for many years now. Some behave as they should and some do not. Remember markets tend to confound the most. One of the oldest relationships is the behavior between retail stocks and crude oil prices. The less consumers spend at the pump, the more purchasing power they have at retail locations. I am not a big believer in it, but the ratio chart below comparing the retail ETF, the XRT, the price of WTI is acting the way it should. Now one can make the argument that it is not so much that retail is thriving, but it is more the case of a plunging crude price. Either way one should always base their investment decisions on the individual chart alone. The XRT is now 17% off most recent 52 week highs, and curiously the 3 largest holdings in the fund, LAD GME and PRTY, are firmly in bear market mode. The remainder of the week should be fun to watch with this particular relationship as crude is now retesting the bear flag breakdown that aligned with the very round 50 number we spoke about in Tuesdays Energy Report.
Keeping an eye on recent IPOs could prove profitable for investors. They are often overlooked which could provide opportunities. One has to deal with lock up selling after that period ends, and it is not uncommon for new issues, to traded in a wide and loose fashion, hallmark bearish traits. Below is the chart of EB and how it appeared in our Consumer Report for 1/2. The suggested pivot to be frank is UNDERWATER, but the buy stop has not been hit just yet. Notice how the round 40 number came into play with a reversal there just after coming public on 9/26. It is still lingering just below a bullish ascending triangle, which are expected to break to the upside. Today it traded in a very wide fashion to as top to bottom was a 10% daily range, and it did not join in the markets eBULLience which could be a tell going forward. Both EB and peer RST are down roughly one quarter from their most recent 52 week highs.