RETAIL SPDR CONSOLIDATES AS RETAIL SALES REPORT LOOMS -- STOCKS HOLD UP AS EURO SINKS TO NEW LOWS -- UTILITIES AND CONSUMER STAPLES SECTORS SHUNNED IN 2012 -- BRAZIL AND RUSSIA LEAD THE BRICS -- BOVESPA BREAKS TRIANGLE TRENDLINE
RETAIL SPDR CONSOLIDATES AS RETAIL SALES REPORT LOOMS... Link for todays video. With December retail sales scheduled for tomorrow, retailers are on the hot seat and the Retail SPDR (XRT) is at a make-or-break level. Chart 1 shows XRT surging above 53 with a sharp six day move that began at the end of November. The ETF has since traded flat the last six weeks and established resistance in the 53.50 area. Overall this consolidation looks like an ascending triangle, which is a bullish continuation pattern. A break above the December high would signal a continuation higher and project a move to around 56.5. The height of the pattern (53.5 50.5 = 3) is added to the breakout for a target (53.5 + 3 = 56.5). Failure to breakout and a move below the early December low would be bearish. The indicator window shows the Price Relative moving lower the last four weeks. This means XRT is underperforming the S&P 500 ETF (SPY), which is a bearish sign. It is the bullish ascending triangle versus the bearish Price Relative. Sooner or later something has to give.
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Chart 1
STOCKS HOLD UP AS EURO SINKS TO NEW LOWS... The Euro Currency Trust (FXE) and the S&P 500 were positively correlated throughout most of 2011. This positive correlation was especially strong the last six months as the Correlation Coefficient spent most of its time in positive territory. This positive relationship turned negative in 2012. Chart 2 shows the Euro Currency Trust opening above 130 the first trading day of the year and moving below 127 today. FXE is down almost 2% year-to-date. In contrast to the Euro, the S&P 500 is up around 2.5% year-to-date. As a result of these divergent moves, the Correlation Coefficient (FXE,$SPX) moved below -.50 for the first time since June. Prior bouts of negative correlation occurred in February-March and June.
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Chart 2
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Chart 3
Either something gives or the market dynamics are changing. Chart 4 shows the S&P 500 moving above its 200-day moving average to start the year. The ability to break this key moving average when the Euro is moving lower shows strength. Stocks are rallying in the face of a prior adversity. Put another way, stocks are going up on bad news. The October trendline and rising 50-day SMA mark first support around 1240.
UTILITIES AND CONSUMER STAPLES SECTORS SHUNNED IN 2012... The S&P Sector Market Carpet below shows average performance for the stocks in the nine sectors. The industrials sector is leading with an average gain of 3.0%. This means the average stock in the industrials sector is up 3% in the last seven trading days. The consumer discretionary, technology, finance and materials sectors are also showing good gains. These sectors with strongest gains have the greenest boxes. While six of the nine sectors show strength in 2012, the average stock is down in three of the nine sectors. Notice that the utilities and energy sectors are pink-red because the average stock is down 1.2%. The average stock in the consumer staples sector is also down (-.5% on average). There is a clear move away from two defensive sectors in 2012 (utilities and consumer staples). On the flip side, money is moving into the offensive sectors, such as finance, technology, consumer discretionary and industrials. The appetite for risk has been healthy so far in 2012.
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Chart 4
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Chart 5
BRAZIL AND RUSSIA LEAD THE BRICS... Brazil, Russia, India and China are known as the BRIC countries, a term coined by Jim ONiel of Goldman Sachs Asset Management. PerfChart 6 shows the 12-month performance for the Brazilian Bovespa Index ($BVSP), Russian TS Index ($RTSI), the Indian Sensex Index ($BSE) and the Shanghai Composite ($SSEC). All four emerging markets are down over this period, however, performance splits when looking at performance over the past month or three months. In particular, Brazil and Russia show gains for the one and three month timeframes, while India and China show losses. PerfChart 7 confirms that Brazil and Russia are showing relative strength the last three months. I suspect that these two are up because the price of oil remains strong, both Brent Crude (BNO) and West Texas Intermediate Crude ($WTIC). OAO Gazprom (OGZPY) and Lukoil (LUKOY), the two biggest components in the Russian TS Index ($RTSI), account for almost 30% of the index. Petrobras (PBR), an oil & gas giant, is one of the biggest components in the Bovespa.
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Chart 6
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Chart 7
BOVESPA BREAKS TRIANGLE TRENDLINE... Chart 8 shows the Brazilian Bovespa Index ($BVSP) breaking above the upper trendline of a triangle pattern. The stock surged with global equities in October and then consolidated with a triangle in November-December. In fact, there are dozens of charts with triangular consolidations in the November-December period. With a surge the last three weeks, the index broke above the upper trendline. Even though there is still resistance around 60,000 from the late October high, this triangle break is positive and signals a continuation of the October advance. Broken support and the early July high mark the next resistance level around 64,000. Triangle support is set at 56,000. Chart 9 shows Pretrobras (PBR) forming a higher low in December and breaking above the trendline extending down from the April high. Chart 10 shows Companhia Vale do Rio Doce (VALE), the second largest company in Brazil, surging off support from the early October low. VALE is a metals and mining company in the basic materials sector.
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Chart 8
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Chart 9
