TELECOM HOLDERS CONTINUE TO OUTPERFORM -- VERIZON NEARS BULLISH BREAKOUT-- MORE CONSUMER STAPLE LEADERS -- ESTEE LAUDER ACHIEVES MAJOR BULLISH BREAKOUT

TELECOM HOLDERS REVISITED ... A review of market sectors over the last month shows a decided preference for defensive stocks. The four top sectors over the last month have been energy (+4.4%), utilities (+3.5%), telecom (2.8%), and consumer staples (-.08%). [Although consumer staples lost ground, they did better than the S&P 500 loss of -1.5%]. My main focus over the last couple of weeks has been with upside breakouts in consumer staple and energy stocks. Before I show a few more consumer staple breakouts, I'd like to revisit telecom. Last June 19, I wrote a market message entitled "New Telecom Leadership". That article wrote about upside leadership coming from AT&T and Verizon. In July, I showed upside breakouts taking place in Telecom Holders and AT&T. My main focus today is with Verizon. But first a review of the telecom sector. Chart 1 shows the Telecom Holders (TTH) trading at a new multi-year high. When I wrote about the group last summer, the TTH was just starting to breakout to the upside (green arrow). I pointed out at the time that telecom was starting to show new upside leadership for the first time in four years. The group continues to show strength both on an absolute and a relative basis.

Chart 1

A LONGER TERM LOOK AT TELECOM... The monthly bars in Chart 2 are an updated version of the chart I showed last summer. The green circle shows that the Telecom Holders were just breaking out to a new four-year high. What really caught my eye at the time was the upturn in its relative strength ratio (blue arrow). The TTH:SPX ratio peaked in 2000 and dropped until the end of 2005. It started rising in 2006. The purpose of the chart is to also show that the telecom group is still relatively cheap historically (it's regained only a third of its 2000-2002 losses). The TTH reached a new five-year this week, and its RS line hit a four-year high. That's a good example of absolute and relative strength. It's not hard to see where a lot of the strength is coming from. Chart 3 shows AT&T trading at a five-year high. The green circle shows the upside breakout that I described last July. AT&T is the biggest holding in the TTH. The second biggest is Verizon, which may be on the verge of a bullish breakout of its own.

Chart 2

Chart 3

VERIZON NEARS FIVE-YEAR HIGH ... Along with AT&T, Verizon has been one of the top Dow performers over the last week. The daily bars in Chart 4 show Verizon moving up to challenge its recent high after having cleared its 50-day average. Its relative strength ratio (below chart) is also rising. Chart 5 shows why a new recovery high would be a very bullish accomplishment. Verizon has been trading sideways for the last five years. Although its relative strength ratio (blue line) has been rising over the last year, the stock has yet to achieve a conclusive bullish breakout. It may be on the verge of doing so. The monthly bars in Chart 5 show that VZ is close to breaking through previous peaks formed in 2004 and 2003. A close over its recent high at 38.77 would complete a major bullish breakout. Another big holding in the TTH is Qwest Communications. Chart 6 shows that telecom stock on the verge of a new six-year high. Although telecom seems to get little attention, it's one of market's best acting groups.

Chart 4

Chart 5

Chart 6

MORE CONSUMER STAPLE LEADERS ... Over the last two Fridays, I've showed a number of consumer staple leaders that were at or close to bullish breakouts. A number have since hit new multi-year highs including Coors (TAP), Kroger (KR), and Kellogg (K). Most of the others have held up pretty well. The next three stocks were among the top five percentage gainers in the consumer staple group over the last week. The monthly bars in Chart 7 show General Mills close to a new record high. Chart 8 shows Safeway on the verge of five-year high. Both of their relative strength ratios (solid blue lines) are rising. Chart 9 shows Tyson Foods (TSN) breaking out of a "symmetrical triangle" (green circle). Its relative strength ratio has just started to rise (blue arrow). Chart 10 shows an even more impressive triangle.

Chart 7

Chart 8

Chart 9

ESTEE LAUDER BREAKS OUT TO SEVEN-YEAR HIGH ... Estee Lauder has been the top percentage gainer in the Consumer Staple SPDR (XLP) over the last two months. And it has a very strong chart pattern. The two converging trendlines in Chart 10 starting in 2000 form a very big symmetrical triangle. The green circle shows that the stock broke the upper resistance line during January. After gaining 3.7% this month, the stock has also exceeded its mid-2004 peak at 48.18. That's a pretty impressive breakout. The stock appears capable of reaching (and exceeding) its all-time high near 55. Its relative strength ratio has just bounced to a new two-year high (blue arrow). It's very noteworthy that all of the consumer staple stocks that I've shown today (and in previous weeks) are starting to do better than the rest of the market. That's usually a sign of a more defensive attitude among investors in a mature bull market. Whatever the reason, money is clearly moving into the consumer staple group. I'd suggest following that trend. And don't forget energy and telecom.

Chart 10