RETAIL ETF'S CONTINUE TO LEAD -- APPAREL AND SPECIALTY GROUPS SHOW RELATIVE STRENGTH -- SECTOR SUMMARY DEMO -- RS LINES HIT NEW HIGHS FOR BBBY, DSW AND PLCE -- RESTAURANT INDEX PULLS BACK AFTER NEW HIGH -- TXRH AND BWLD LEAD RESTAURANT GROUP

RETAIL ETF'S CONTINUE TO LEAD ... Link for today's video. John Murphy pointed out the negative correlation between retail stocks and the price of oil in early December. In short, retail stocks rose sharply as the price of oil fell sharply. This theme continues to play out because oil moved to the low 60s this month and the retail ETFs moved to new highs. The Retail SPDR (XRT) showed relative strength last week because it declined much less than the S&P 500 and the S&P Small-Cap 600. The S&P 500 fell 3.52% last week, the S&P Small-Cap 600 was down 2.71%, and XRT was down just .16%. This is a good sign for a key industry group and chartists should look for this group to lead when the stock market comes out of its December doldrums.

Chart 1 shows XRT exceeding its September highs in mid November and hitting new highs. The ETF pulled back in December and firmed at support in the 90 area. I am using the Raff Regression Channel, a buffer and the mid November low to mark support. Note that I try not to use the Raff Regression Channel, or any indicator for that matter, on its own. For support zones, I look for a reaction low (trough) just below the lower trend line of the Raff Regression Channel. In this case, the 18-November low marks support at 90. A red Raff Regression Channel defines the December downswing and I am marking resistance at 93, a break of which would signal an end to the correction and a resumption of the October-November advance. Chart 2 shows the MarketVectors Retail ETF (RTH) breaking flag resistance last week.

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Chart 1

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Chart 2

APPAREL AND SPECIALTY GROUPS SHOW RELATIVE STRENGTH... XRT is a broad-based retail ETF with around 100 stocks. In this regard, it is a great proxy for the retail industry as a whole and allows investors to spread the risk. According to the SPDR website (www.spdrs.com), apparel retailers account for 23.65% and specialty stores weigh in at 17.08%. These are the two biggest groups. Chart 3 shows the DJ US Apparel Retailers Index ($DJUSRA) hitting 52-week highs in August and again in November. The trend on this chart is clearly up and the price relative has been rising since August. In fact, the $DJUSRA:$SPX ratio hit a new high today and this is a leading group. Chart 4 shows the DJ US Specialty Retailers Index ($DJUSRS) hitting a new 52-week high even as the S&P 500 declined 3.52% last week. The indicator window shows the price relative also hitting a 52-week high.

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Chart 3

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Chart 4

RS LINES HIT NEW HIGHS FOR BBBY, DSW AND PLCE ... The next three stocks come from these two groups and show promising chart patterns. These stocks are in uptrends and show relative strength (RS). Chart 5 shows Bed Bath & Beyond (BBBY) forming a flag within an uptrend. This is a bullish continuation pattern and a breakout at 73 would target a move to new highs. Chart 6 shows shoe retailer DSW Inc (DSW) with breakouts in August and November. The stock consolidated with a flag in December and the price relative hit a new high. Chart 7 shows Children's Place (PLCE) surging above the August high and then consolidating. The indicator window shows the price relative (PLCE:SPY ratio) hitting a six month high.

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Chart 5

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Chart 6

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Chart 7

Note that individual retail stocks carry added risk because an earnings miss or downward guidance would negatively affect the stock. A broad-based retail ETF, such as XRT, spreads the risk and cushions the impact of negative surprises in individual names. Just keep this in mind when considering individual stocks.

RESTAURANT INDEX PULLS BACK AFTER NEW HIGH... Restaurants are also part of the Retail SPDR and account for around 7.5% of the ETF. Chart 8 shows the DJ US Restaurants and Bar Index ($DJUSRU) breaking out in early November and hitting new highs in early December. The index pulled back rather sharply last week, but the overall trend is clearly up and potential support is close at hand. The indicator window shows the index relative to the S&P 500. Relative performance has been flat since September and a break above the August-October highs is needed to show relative strength.

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Chart 8

TXRH AND BWLD LEAD RESTAURANT GROUP... Chart 9 shows Texas Roadhouse (TXRH) breaking out in late October and hitting new highs throughout November. The stock has since formed a consolidation over the last six weeks and it looks something like a diamond. A breakout at 32.50 would signal a continuation higher. Chart 10 shows Buffalo Wild Wings (BWLD) breaking out with a big surge in October and moving to a new high in late November. The stock has since consolidated with a tight range and a breakout here would signal a continuation higher. A support break at 165 would be negative, but I would still view any weakness as a pullback within a bigger uptrend and expect support sooner rather than later.

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Chart 9

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Chart 10

WEBINAR ON TUESDAY... Note that I will be hosting a Webinar on Tuesday, December 16th, at 1PM ET. Among other things, I will look at some stock-specific risk indicators, ranking the sector SPDRs, showing a short-term breadth indicator for sector timing and show some techniques for measuring relative strength. Hope to see you there. Click here to register