RETAILERS AND CONSUMER DISCRETIONARY SECTOR STILL LAGGING -- ERTS LEADS SURGE IN VIDEO GAME STOCKS -- TTWO BREAKS OUT TO 52-WEEK HIGH -- NIKKEI 225 BOUNCES OFF SUPPORT -- SHANGHAI COMPOSITE BOUNCES OFF KEY RETRACEMENT
RETAILERS AND CONSUMER DISCRETIONARY SECTOR STILL LAGGING... Link for todays video. Despite a big jump in the stock market on Tuesday, the Consumer Discretionary SPDR (XLY) and the Retail SPDR (XRT) remain key laggards. Again, this remains a concern because these companies are the most sensitive to changes in the economy. Chart 1 shows XRT falling sharply the first week of January and then edging lower the last few weeks. While SPY and DIA are trading near new 52-week highs today, the Retail SPDR (XRT) is trading near at two month low. In fact, XRT gave back all of Tuesdays bounce with a 2% decline today. A break above resistance from the mid January highs is needed to put XRT back on the bullish track. The indicator window shows the Price Relative peaking in late November and moving to its lowest level since early September. Retailers are clearly showing relative weakness and this cast a dark cloud on the new high in SPY.
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Chart 1
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Chart 2
Chart 2 shows the Consumer Discretionary SPDR (XLY) failing to hold a consolidation breakout last week and closing below support on Friday. XLY bounced with the rest of the market on Tuesday, but the gain was quite modest and the bounce is looking rather feeble at the moment. XLY has been showing relative weakness since early December as the Price Relative moved lower the last two months. Fridays decline and support break mark the start of absolute weakness.
ERTS LEADS SURGE IN VIDEO GAME STOCKS... A better-than-expected earnings report propelled Electronic Arts (ERTS) sharply higher with big volume. Chart 3 shows ERTS bouncing off support three times since late August. Todays move carried the stock above its October high. Volume was around 42 million shares. With a 250-day average volume of some 6 million shares, ERTS traded around 7 times its normal volume today.
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Chart 3
Strength in this big game maker carried over into other game makers. Chart 4 shows Activision Blizzard (ATVI) bouncing near the May trendline and 62% retracement mark. Enthusiasm was relatively subdued as volume was just average. Chart 5 shows THQ Inc (THQI) surging to its January high with big volume. Chart 6 shows Take-Two (TTWO) breaking out to a new 52-week high with above average volume. TTWO shows the most relative strength because it is the only one trading at a 52-week high.
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Chart 4
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Chart 5
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Chart 6
NIKKEI 225 BOUNCES OFF SUPPORT... The Nikkei 225 ($NIKK) remains in an uptrend since the November breakout and the index formed a falling flag over the last few weeks. The overall trend is clearly up here. The falling flag represents a correction within this uptrend. A break above the late January high would signal a continuation higher.
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Chart 7
Japanese stocks have performed quite well over the last three months. In fact, the Nikkei has been stronger than the Shanghai Composite ($SSEC) since early November. The indicator window shows two Price Relatives: $NIKK:$SSEC and $NIKK:$SPX. These ratios measure relative strength. The ratio increases when the numerator ($NIKK) rises faster than the denominator ($SSEC or $SPX). These ratio charts provide a simple means to compare the performance of two securities. Relative to the S&P 500, the Nikkei has been underperforming since late November. Of course, the S&P 500 surged around 10% from 30-Nov to 1-Feb. Not many indices can match that move.
SHANGHAI COMPOSITE BOUNCES OFF KEY RETRACEMENT... Before analyzing the next charts, a brief review of the 62% retracement is in order. 62% comes from the Fibonacci number, .618, which in turns comes from the Golden Mean or Golden Ratio (1.618). Fibonacci numbers play an important role in Elliott Wave analysis. In particular, these ratios are used to measure retracements and project Wave length. See our ChartSchool article for more on Fibonacci numbers. See Robert Prechters book, Elliott Wave Principle, for details on combining Elliott Wave and Fibonacci.
The Shanghai Composite ($SSEC) has been one of the weakest indices in the world over the last few months. While the S&P 500 hits new highs, the Shanghai Composite is trading back near its August-September levels. Even though the index remains in a downtrend since the November plunge, support from the Aug-Sep consolidation is at hand. In addition, the decline retraced 62% of the July-November advance. With a five day advance, the index has bounced back above 2750. This is promising, but the index remains just shy of a breakout. Follow through above the January high is needed to fully reverse the 3-month downtrend and call for a continuation of the July-November advance.
