AMAZON SURGES -- SCHERING PLOUGH, GENERAL MILLS, AND USF CORP NEAR BULLISH BREAKOUTS -- TRANSPORTS TEST 1999 HIGH
AMAZON BREAKS OUT ON GOOD VOLUME... Amazon.com is today's standout stock performer on the Nasdaq market. News of a strong holiday season is pushing the stock through two important resistance barriers -- its September peak and its 200-day moving average. The two big volume bars reflect heavy buying in the first two days of the week. Its relative strength line (measured against the Nasdaq Composite Index) is jumping impressively as well. Amazon.com has been a relative laggard in the Nasdaq market and the Internet group. That appears to be changing for the better. The weekly bars in Chart 2 also show bullish promise. The two parallel trendlines form a declining "trend channel" extending back to October 2003. Prices recently bounced off the lower support line and appear headed for a challenge of the upper resistance line. A decisive close above the upper line would be an even more bullish signal. The AMZN/Nasdaq ratio is also interesting. It shows relative underperformance for more than a year (see down arrows). The recent upturn in the weekly RS line suggests that AMZN may be assuming a new leadership role.
Chart 1
Chart 2
SCHERING PLOUGH NEARS MAJOR BREAKOUT... I recently showed some large drug stocks that, in my opinion, had bullish chart patterns. They included Abbott Labs, Bristol Myers Squibb, and Johnson & Johnson. I also showed Schering Plough which appeared to be in the early stages of a new uptrend. In a reviving drug group, SGP is trading at a new 52-week high today. Even more importantly, the weekly bars in Chart 3 show the stock challenging its mid-2003 peak near 21. A decisive close through that long-term barrier would represent a major bullish breakout. Its relative strength line is also starting to outperform the S&P 500. A lot of recent press has warned investors away from the big drug stocks. While Merck and Pfizer don't look that promising, several other drug stocks have attractive chart patterns. Schering Plough is one of them.
Chart 3
GENERAL MILLS IS BREAKING OUT ... I also recently showed a number of consumer staple stocks that were starting to attract new money. One of them was General Mills. The weekly bars in Chart 4 show the stock hitting a new 52-week high today after having recently broken through its spring high at 49. It's moving up to challenge its early 2003 peak. The monthly bars in Chart 5 suggest that previous peak will probably be broken. The converging trendlines in Chart 5 look like a bullish "symmetrical triangle" that's been forming for three years. GIS has broken through the upper resistance line. That carries bullish implications and raises the likelihood that its late 2001 peak near 51 will be tested and eventually exceeded. The GIS/S&P 500 ratios on the weekly and monthly charts appear to be turning higher. If so, that carries a dual message. The blue arrows in Chart 5 show the three latest turns in the GIS relative performance. The RS line bottomed in 2000 as the rest of the market weakened. The RS line peaked in early 2003 as the market bottomed. It now appears to be turning higher. I had recently suggested some rotation into these defensive stocks in case the market ran into trouble in the new year. A reader asked if these stocks could rise in a falling market. The answer is yes. GIS rose throughout 2000 and 2001 as the rest of the market fell. It not only did better relatively. It also made money.
Chart 4
Chart 5
USF NEARS MAJOR BREAKOUT... The transportation group has been and remains one of the strongest market groups. A number of transportation leaders are at or near record highs. Normally, I point out leaders in a strong group. In this case, however, I'm showing a transportation laggard that may be in the verge of a big bullish breakout. The stock is USF Corp. The stock deals in everything from trucking to ocean freight. The monthly bars in Chart 6 show the stock nearing a 52-week high. More importantly, it's nearing the top of an apparent bottoming pattern that's been forming for five years (since 2000). A move over 40 would put USF at the highest level since the spring of 2000 and would represent a big bullish breakout. Its relative strength line shows that it's lagged behind the S&P 500 for the last two years, although it's bounced recently. This stock may offer entry into a strong sector where many of the stock leaders are already in major uptrends.
Chart 6
WHY TRANSPORTS ARE RISING? ... I've been asked several times why the transports have stayed so strong during 2004 in the face of rising energy prices. Most of the transportation strength has been in rails, truckers, and ocean freight. The rail and trucker strength has come largely from the movement of imported goods (mainly from China). That has led to logjams at various ports of entry as rails and trucking firms have gotten back-logged. Ocean freight strength has also come from the movement of commodities and oil in particular. Paradoxically, the rise in energy demand has actually contributed to strength in many transportation stocks. The only transportation group that has shown the normal inverse relationship to oil has been the airlines. They've started to rise during the fourth quarter as oil has dropped. Chart 7 shows the Dow Transports moving up to challenge their 1999 high near 3800. The monthly ratio line shows their relative strength versus the Dow Industrials. Most of that outperformance came during 2004 as oil was rising. Back in October, I expressed the view that new highs by the Dow Transports and Utilities would start to pull the Dow Industrials higher as well (October 26, 2004). So far, that's been the case. What the Transports do at their 1999 highs may tell us something about the staying power of the current rally.
Chart 7
Chart 8
