IBM AND WALMART PACE DOW GAINS -- FALLING GASOLINE PUSHES RETAIL HOLDERS TO RECORD HIGH -- AIRLINES ARE ALSO BREAKING OUT -- I'LL BE SPEAKING IN SWITZERLAND THIS WEEK
BIG BLUE HITS NEW 52-WEEK HIGH ... Two of the stocks that are leading the Dow to new highs are IBM and Walmart. That's interesting because both blue chips have been market laggards for a long time. Not anymore. Chart 1 shows IBM breaking through the highs of late last year to reach a new 52-week high. The next hurdle that Big Blue will have to overcome is the early 2004 peak at 98.68. The blue relative strength line measures IBM versus the Dow since 2002. The falling ratio show IBM underperformance. Although the ratio still has a ways to go to turn its trend upward, it's at least starting to rise. Wal Mart is also breaking out.
Chart 1
WAL MART BREAKS OUT ... Perhaps the biggest stock story of the day is the bullish breakout in Wal Mart. The daily bars in Chart 2 show the world's biggest retailer breaking out to a new 52-week high. And it's doing it on very strong volume. The WMT/Dow ratio below Chart 2 is also starting to rise for the first time in a long time. The weekly bars in Chart 3 show just how badly Wal Mart has done over the last four years on an absolute and relative basis. The good news is that it's rebounding off long-term chart support and is starting to turn up. Two groups that are benefiting strongly from the WMT breakout today are consumer staples and retailers. I believe that to be a direct result of falling oil prices which are hitting a new yearly low again today.
Chart 2
Chart 3
RETAIL HOLDERS HIT NEW RECORD HIGH ... I've shown this chart before, but it's worth another look. That's because the daily bars show the Retail Holders (RTH) trading over 100 for the first time in its history. It's getting a lot of help from Wal Mart. But a lot of other retailers are moving up as well. The black line overlaid on the price bars is the price of gasoline. It's clear that the upturn in the RTH during August coincided with a plunge in gasoline prices (people have to drive to the mall). That upturn is also reflected in its relative strength line which bottomed during August as well. It's no coincidence that Retail Holders are hitting a new high on the same day that gasoline is trading a new yearly low.
Chart 4
AIRLINE INDEX IS TAKING OFF ... Another group that benefits directly from falling energy prices is the airlines. [See Friday's positive story on the group]. With oil falling again today, airlines are one of the day's top groups. The daily bars in Chart 4 show the Airline Index (XAL) trading over its July peak at 55.56. It looks headed toward a challenge of its 2006 high at 56.50.
Chart 5
KEEPING AN EYE ON THE NASDAQ... The market is starting the week on a strong note. A lot of the buying is coming from falling oil prices. The Nasdaq market is leading today's rally. As I've suggested before, the next major test for that market will be its ability to exceed its spring high. That test will also have an important bearing on the rest of the market. Chart 6 is a point & figure chart of the Nasdaq Composite. The main value of a p&f chart is the precision of its buy and sell signals. A buy signal is given when an x column (rising prices) exceeds a previous x column (an upside breakout). There can be several buy signals given during an uptrend. The first buy signal on Chart 6 was given at 2120 during August. Since then, five successive buy signals have been given. In order to give a sell signal (or a profit-taking signal) prices must fall below a previous o column (o columns represent falling prices). The last two o column lows are at 2330. That means that the Nasdaq would have to drop to 2320 to justify some profit-taking. A short-term upside breakout would occur at 2370. A major upside breakout would occur at 2380.
Chart 6
SPEAKING IN SWITZERLAND ... I'm leaving this evening to attend and speak at the 19th Annual Conference of the International Federation of Technical Analysts (IFTA) which is being held in Lugano, Switzerland. IFTA is the global organization of technical market societies and professional associations across 26 countries. This year's conference topic is "New Methods for Intermarket Technical Analysis". That's especially gratifying to me since I first introduced that approach in my 1990 book "Intermarket Technical Analysis". It will be interesting to see what the world's top analysts have done with the subject. One of our regular contributing writers will be filling in for me while I'm gone during the week. Hopefully, I'll be back next week.
