Market Wrap Up March 17/05

by Martin Goldberg

A Technical Look at Important Consumer Stocks

The seemingly worldwide economic boom is one of development and production in Asia, and debt and consumption in the US. Tonight I will look at the technical charts of some of the key consumer stocks in the US in order to gain some insight into the condition on the US consumer. The technical charts are indicating that the US consumer appears to be slowing down in their purchase of big ticket items such as cars, furniture and big screen TVs; yet is still going strong when it comes to smaller ticket items such as crafts. The lower middle class consumers have slowed their spending some time ago as indicated in the chart of Wal-Mart. Parents still are reluctant to conserve when it comes to providing for their kids.

Automobiles

Following are charts of GM, Ford, Daimler Chrysler, Toyota, Nissan, Volvo, and Honda.

Interestingly, the US Automakers GM and Ford are in bearish trends whereas the others are in neutral or bullish trends. Daimler Chrysler (DCX), Volvo (VOLVY), and Honda (HMC) are in uptrends, and Toyota (TM), and Nissan (NSANY) are in trading ranges. For the moment, at least, problems with auto sales seem to be company specific problems with General Motors and Ford.

Furniture

Following are the charts of Ethan Allen (ETH), Lazy Boy (LZB), Furniture Brands (FBN), Bassett Furniture (BSET), and Natuzzi SpA. Three US furniture retailers have bearish charts which are either in a defined downtrend or below their 50-day moving average. One US furniture company, Bassett Furniture, is in a trading range. Natuzzi SpA, headquartered in Italy, is in an uptrend.

Electronics – Best Buy

The chart of Best Buy (BBY) provides a good picture of electronics because they are clearly the market leader in this field, and their closest competitor, Circuit City, is involved in a takeover offer. Best Buy is in a downtrend that began in mid-December.

Home Furnishings

With homebuilders doing so well, you would expect that Bed Bath and Beyond (BBBY) would be confirming the strength in homebuilding, yet over the last three years, Bed Bath has not made any stock market progress. It could be argued that Bed Bath may have been growing into its rich valuation; still a look at the 3 year weekly chart paints a bearish picture in recent months. After participating in the pre-election stock market rally, Bed Bath has been in a consistent downtrend that began in mid-November. The stock now resides below both its 50 and 200 day moving averages.

The bearish action in Bed Bath and Beyond is being confirmed by its closest competitor, Linens N Things. As shown in the one year daily chart below. After trying to form a rounded bottom, Linens N Things gapped down from about 26 to the low 20’s, and has lost over 35% of its value over the last year.

Casinos

Harrah's has broken its steep uptrend line. Even though the stock has not broken down, it’s running out of momentum and looks tired as shown in the one-year daily chart below. It closed Wednesday below its 50-day moving average. It appears that Harrah's has probably seen a top.

Note the similar action in Caesars,

…and MGM Grand.

Retail for Those on a Budget – Wal-Mart and Costco

It is no secret that the lower middle class US consumer is slowing down as he struggles with the realities of this economy including gas prices without the deception provided from an inflated home value and mutual fund portfolio. Without this perceived wealth, his spending is slowing down and this clearly shows on the one-year chart of Wal-Mart.

On Wednesday, Wal-Mart Stores closed below a bearish support line. The picture is bearish; yet as I draft this on Wednesday night, I’m betting that a whip-saw will ensue because this has been a fairly consistent behavior of most stocks breaking support over the last 2 years. Failure to whip-saw shorts may indicate that the trend of the overall market has turned to bearish. There is more on Wal-Mart’s action below in “Today’s Market.”

Costco is in a downtrend which began in early December. It faces similar demographic problems as Wal-Mart.

Cost Conscious Upper Middle Retailer – Target

Target has been in a trading range, which is neither bullish nor bearish

Mid Range Department Stores – A Bubble

Below are the charts of Federated Stores (FD), May Department Stores (MAY), K-Mart (KMRT), Sears (S), JC Penny (JCP), Sacks (SKS), Dillards (DDS), and Neiman Marcus (NMGa). I’m not certain, but I think we are in the midst of a department store bubble, brought on by a bunch of “deal-doing.” When this group reverses, they are likely to fall fast and far. No rush to take a position because as Greenspan says, “You can afford to be patient.” The present day picture is bullish and these stocks all appear to have the most necessary component in today’s market – momentum!

It doesn’t seem to concern anyone trading these stocks that the consumer may be slowing down. It also doesn’t matter that these companies have delivered very little to their shareholders in the way of dividends or actual value over the last one-hundred years. It is interesting to note that the biggest distinction between these companies and Target and Wal-Mart are:

Target and Wal-Mart are consistently successful and the mid-range dept. stores are not.
Target and Wal-Mart are unlikely to be involved in a Wall Street merger.
Target and Wal-Mart are in bearish chart patterns.

Go figure!

Restaurants and Bars

Spending in restaurants appears to remain robust. The index has been in a trading range fooling bulls and bears alike since New Year's. A decisive break of 330 to the downside would be bearish, and a decisive break of 360 to the upside would be bullish.

Crafts – Michael's Stores

I’m astounded by the consistently bullish behavior of these stocks, which must be benefiting from the low cost of their crafts items and the China currency peg.

Michael's Stores relative price has broken into new high ground. Business must be well! Yet all is not rosy in crafts, as the smaller cap competitor to Michael's Stores, AC Moore, appears to be in a newly formed downtrend.

Kids Clothes

All indications are that the consumer is not slowing down when it comes to their kids. Below are the charts of kids and teen apparel retailers, American Eagle, Abercrombie, Aeropostale, the Buckle, Gap Stores, Hot Topic, Pacific Sunwear, Limited Too, Urban Outfitters, and Deb Shops. All are in uptrends. So far there are no signs of a slowdown in this sector.

Today’s Market

The stock market finished little changed while the bond market rallied for the second straight day. Big ticket mobile home builder, Winnebago (WGO), posted disappointing results, yet held its technical support.

The chart below of the 7 to 10 year Treasury bond exchange-traded fund (IEF) shows that the former support line is now being approached from below. We should see if this line, just below 84, becomes resistance. This is an important technical level, since so much of our economy is being supported by a strong bond market/low interest rates.

Oil rallied in the morning but finished the day down a few cents, while small and mid cap oil-related stocks did very well. Oil is now the headliner of finance TV and radio while its every move is reported on every few minutes. For traders this is relevant and for investors, it’s just a lot of noise. Gold and silver were little changed as were the XAU and the HUI.

Traders who were waiting to sell into the breakdown of Wal-mart stock were treated to a 2% whipsaw today, the same type that caught Cisco bears about 2 weeks ago. Yet there are now pockets of weakness where stocks can be shorted profitably, although caution is important, until necklines breaking in stocks such as Cisco and Wal-mart become more commonplace. General Motors has been a profitable short as have auto parts companies, for-profit education companies, and home finance companies. Yet there is still risk in chasing any stock, either up to buy or down to sell short.

It is also notable that the homebuilder stocks have sold off again in spite of a 2 day bond market rally. The 3-month daily chart below shows that the index is at a critical support level. If it breaks down, down goes a market leader and pop may go the bubble. Yet these heavily shorted stocks are likely to get whipsawed. This is a chart well worth keeping an eye on.

Have a great evening.

Martin Goldberg

Martin F. Goldberg, MS, P.E.
Market Analyst
email mdelmgoldberg@comcast.net