RETAIL SPDR CHALLENGES OCTOBER HIGH -- ITS LONGER RANGE CHART SUGGESTS BASING ACTIVITY -- APPAREL RETAILERS HAVE TURNED UP -- LEADERS INCLUDE BURLINGTON STORES, GAP, AND URBAN OUTFITTERS -- INVESTORS ARE BUYING TIPS AS A HEDGE AGAINST RISING INFLATION
S&P 500 RETAIL SPDR ATTEMPTS UPSIDE BREAKOUT ... Retail stocks may have a strong holiday season after all. Chart 1 shows the S&P 500 Retail SPDR (XRT) trying to clear its early October high near 42. That would put it at the highest level in six months. It gapped over its 200-day average last week. The solid line shows the XRT/SPX ratio starting to jump during November as well. Its longer range chart is also encouraging. The weekly bars in Chart 2 show the XRT bouncing successfully off previous chart support formed near the start of 2016. That suggests that a bottom may be forming. It's also encouraging to see its 10-week average climb above its 40- week line for the first time in nine months (blue circle). Its weekly MACD lines (below Chart 2) have also turned positive. That suggests that investors are doing some stock shopping in the retail space. Big retail names like Amazon (AMZN) and Walmart (WMT) have hit record highs and boosted the retail group. Some of today leaders, however, are apparel retailers.
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Chart 1
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Chart 2
DOW JONES US APPAREL RETAILERS INDEX TURNS UP ... The daily bars in Chart 3 show the Dow Jones US Apparel Retailers Index ($DJUSRA) recently gapping up to the highest level since May (see circle). [And it did so in heavy trading]. It's also well above its 200-day moving average and a falling trendline extending back to last December. That's the first sign of absolute and relative strength in at least a year. Its weekly bars in Chart 4 show the apparel retail index in a major downside correction that started in the spring of 2015. It has, however, climbed back over its mid-2016 low and is showing some signs of basing activity. It has already cleared its 2017 downtrend line and its 40-week average. In addition, its 14-week RSI line (top of chart) has moved over the 50 level for the first time in a year. And its weekly MACD lines (below chart) have turned positive. All of which suggest that the worst may be over for this group. And that investors are starting to shop for apparel stock bargains.
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Chart 3
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Chart 4
BURLINGTON STORES, GAP, AND URBAN OUTFITTERS ARE RETAIL LEADERS ... Three of the strongest stocks in the apparel retail group are shown below in alphabetical order. Chart 5 shows Burlington Stores (BURL) trying to clear its spring high again after recently touching a new record. Its relative strength line (top of chart) has reached a five-month high. Chart 6 shows Gap (GPS) rising above its 2016 high to trade above 30 for the first time in two years. Its relative strength line (top of chart) also appears to be turning up. Chart 7 shows Urban Outfitters (URBN) reaching a new high for the year. So has its relative strength line. In all three cases, their 50-day averages are trading above their 200-day lines, which is symptomatic of strong uptrends. Other promising apparel retail charts belong to American Eagle Outfitters (AEO) and L Brands (LB).
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Chart 5
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Chart 6
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Chart 7
TIPS ARE DOING BETTER ... Fixed income investors are starting to buy Treasury Inflation Protected Securities (TIPS). The green bars in Chart 8 show TIPS Bond iShares consolidating well above their 50-day average. The rising green line above the chart is a ratio of TIP divided by the 7-10 Year Treasury Bond ETF (IEF). That rising ratio shows TIPS doing much better than traditional Treasury bonds over the past few months. That's a sign that investors are starting to hedge against an uptick in inflation. [TIPS increase principal when inflation rises]. Perhaps bond traders have noticed the uptrend in crude oil prices which have reached a two-year high (top box). If you look closely, you'll see that the two upper lines have been rising together since June. They may also have noticed that a falling dollar has reduced their purchasing power while boosting commodity prices. That's also potentially inflationary. Maybe shoppers are also out buying clothes before prices go up.
