Today's Market WrapUp 07.05.2007 Mon Tue Wed Thu Fri Goldberg Archive Bull
Run - US Consumer a Passenger Only
With the major indices moving to new highs, there are some sectors whose previous leadership is now conspicuous in its absence. Whereas before, leadership from US financials and consumer stocks served as a good reason to be bullish, this time it is different. These stocks appear to be lagging badly. Especially weak are the US banks and certain consumer stocks that rely on the spending of the US middle class consumer. While it would not be popular at best and incorrect at worst to suggest bearish implications for the market in the near term, it would probably be appropriate to stop reading poems and take notice of the consumer cracks that are starting to appear on the market’s horizon. US Financials Weak Across the Board The table below lists key financial industry groups from Investor Business Daily’s (IBD) 197 categories along with its rank (of 197) in group stock market performance over the last 6 months, and its percentage gain (or loss) since January 1 of 2007.
Particularly weak are banks where practically all categories posted negative returns since the beginning of the year. The IBD category of Midwest banks posted double digit negative returns since the beginning of the year. “In spite of the fact that the mid-west was largely not subject to a real estate bubble, I find it quite economically disturbing that their bank stocks appear to be in trouble.” In addition, investment bankers’ stock performance was relatively lackluster during the first half of the year. “With a deal here and a leveraged buyout there, one would wonder what the deal with investment bankers stocks is. Could it be something about their not considering enough of the loan leverage? Tisk, tisk, tisk.” In my view, it is likely that an important factor in the underperformance in financial stocks has a lot to do with rising interest rates in the US, as indicated by the 30-year T-Bond yield. While interest rates always fluctuate, possible long term trend breaks such as the one illustrated in the chart below, should always be respected. It is rare when stocks and bonds top at the same time, but it is important to know that historically, stock and bond prices head in the same direction, and that bonds tend to lead stocks.
“Have
your fun now with your Apple, your RIMM, your CROX, and your $SOX. The regional bank holders’ ETF now is below its 200 day moving average, and it appears to be ready to put out an intermediate term sell signal from a point-and-figure perspective.
Note in the chart below that a close at 152 or below would represent a double bottom breakdown sell signal in the point-and-figure chart. One pulling for the bullish case would like to see 154 hold as support for the Regional Bank ETF.
Several US Consumer Categories Now Appear in the Bottom Quartile During the latest bull run, there have been several US consumer industries that have appeared in the bottom quartile of stock performance. These are listed below. It is important to note that there are still several US consumer industries that are still doing well in this market. For example, restaurants still rank near the middle of the stock performance pack (91st of 197) for 6-month stock performance. This does not seem consistent with movies’ rank of 172nd, unless “dinner and a movie” has turned to “dinner and a video” for many US consumers. Department stores are also a noted laggard in 6-month stock market performance. While many a bear has been quick to jump upon Wal-Mart’s underperformance as a sign of what is going on in the middle class consumer, it is important to remember that every upper-middle class and middle-middle class consumer is a potential Wal-Mart customer. Could the performance of J.C. Penney (JCP) be a better “gauge” of the US consumer? Unlike the hundreds of head and shoulders patterns you may have seen on the internet, this one is different. What’s different about it? It has been completed!
“Cast a jaundiced eye upon the incomplete head and shoulders pattern, and an agreeing eye upon the completed one, for this indicates a clear and dependable change of trend from sideways to down. Keep your limit order near the neckline and your stop order above it, and you will be just fine.” Other middle of the road consumer discretionary stocks whose stocks appear to be weakening in the intermediate term include Nordstrom (JWN), Macys (M), Brunswick Corp. (BC), Winnebago (WGO), and Bed Bath and Beyond (BBBY). Such consumer stocks are highly leveraged to the real estate market and the stock market through the seldom mentioned “wealth effect.” Therefore, their weakness is of greater concern with the stock market hitting all time highs. “I thought I’d go to Nordstrom to get some expensive shoes, but didn’t plan on what I would lose when the market went down, it made a great thudding sound and the piano player played the blues. (I went to Sears Instead.)”
Nordstrom is forming a descending triangle pattern which has not been completed. There’s support at about 49. Today’s Market The market was led marginally higher today by the household names in the Nasdaq 100, including Google, Apple, Research in Motion, and Oracle. Can you guess what company’s long term stock action is depicted in the chart below? This company’s stock made news as it was bought by the Blackstone Group at a 26% premium over Tuesday’s closing price.
This is the long term chart of Hilton Hotels. (From the looks of the chart, and the size of the premium, I wouldn’t say the buyers were not using the Benjamin Graham or Warren Buffett philosophy. Have a great evening. Martin Goldberg Copyright © 2007 All rights reserved. CONTACT
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