RETAILERS CONTINUE TO ACT WELL IN FACE OF EUROPEAN WORRIES -- MACYS HITS TWO-YEAR HIGH -- ABERCROMBIE COMES CLOSE -- GAP EXCEEDS 200-DAY AVERAGE -- GOLD AND SILVER PRODUCERS RALLY AS WELL -- BARRICK NEARS 52-WEEK HIGH
RETAILERS LEAD DISCRETIONARY SECTOR HIGHER... It looks like a tug of war is going on in the U.S. stock market between worries over European debt problems and signs of improvement in the U.S. economy. I normally take my cues on the economy from stock action. And one sign of definite improvement is strength in retailers and consumer discretionary stocks in general. Consumer spending accounts for 70% of the U.S. economy. And, in my opinion, one of the best ways to track consumer spending is to track the trend of retail stocks. Chart 1 shows the Consumer Discretionary SPDR (XLY) consolidating over its spring high. The XLY/SPX ratio (below chart) has been rising since July. Most of the discretionary sector strength is coming from retail stocks. Chart 2 shows the S&P Retail SPDR (XRT) also trading well above its spring high. Its relative strength ratio is rising sharply as well. With early holiday spending exceeding expectation, it seems like retail stocks may be one of the few places where European concerns are taking a back seat.
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Chart 1
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Chart 2
TODAY'S RETAIL LEADERS INCLUDE MACY'S, ANF, AND GAP... These three stocks caught my eye today because they're among the top percentage gainers in a strong retail group. And they're all showing good chart action and improving relative strength. The strongest of the three is Macy's (M). Chart 3 shows the stock having hit a new 52-week high after recently exceeding its April high. Its relative strength ratio (below chart) has been rising since midyear. Chart 4 shows Abercrombie & Fitch (ANF) in the process of testing its spring high near 60. An upside breakout would be an additional sign of strength. Its relative strength ratio, which has been rising since July, is testing its spring high as well. Gap (GPS) has been a relative laggard in the retail group, but is starting to act better. Chart 5 shows the stock trading at a new five-month high after clearing its 200-day average (red line). Its relative strength ratio has started to climb as well.
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Chart 3
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Chart 4
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Chart 5
GOLD STOCKS ALSO HOLD UP OKAY... Another stock group that appears unaffected by European worries is gold. In fact, gold and gold stocks may be benefiting from foreign concerns because of their traditional safe haven status. More importantly, they're acting well technically. Chart 6 shows the Market Vectors Gold Miners ETF (GDX) bouncing for the second time off its (blue) 50-day moving average. Its relative strength ratio (below chart) appears to be on the verge of a bullish breakout. Interestingly, two of the biggest holdings in the GDX show very different patterns. Chart 7 shows Barrick Gold (the biggest holding in the GDX) surging toward a new 52-week high. That's good relative strength. By contrast, Chart 8 shows Newmont Mining (the third biggest GDX holding) starting to bounce off its 200-day average. Despite its relatively weak performance, NEM may offer a cheaper alternatiive for investors who are reluctant to chase gold leaders.
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Chart 6
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Chart 7
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Chart 8
JUNIOR GOLD MINERS INDEX IS RISING FASTER ... Those investors looking for more bang for the buck in precious metal stocks, and who are willing to assume more risk, might want to look at the Market Vestors Junior Gold Miners ETF (GDXJ). The GDXJ includes small to medium size gold and silver stocks. Chart 9 shows that the GDXJ (black line) has risen twice as fast as the larger cap Gold Miners Index (blue line) since the start of the year by a margin of 58% to 30%.
Chart 9
JUNIOR PRECIOUS METAL LEADERS... The Market Vectors Junior Gold Miners Index includes gold and silver miners from the U.S. and Canada. I've chose three of the stronger looking ones from both countries from among the top ten holdings. Chart 10 shows NovaGold Resources (US) forming a bullish "pennant" pattern. [The pennant is a small triangle pattern that normally results in resumption of the prevailing trend]. Chart 11 shows Hecla Mining (US silver stock) nearing a new 52-week high. Chart 12 shows a Alamos Gold (Canadian) surging as well.
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Chart 10
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Chart 11
