FOOTWEAR IS ANOTHER XLY LEADER -- THAT INCLUDES CROCS, NIKE, AND SKECHERS -- TESLA ACCOUNTS FOR AUTO STRENGTH -- ALL MAY BE TIED TO IMPROVEMENT IN CHINA -- THAT INCLUDES GAMBLING AND HOTEL STOCKS -- ROYAL CARIBBEAN CRUISES SAILS TO NEW RECORD
ADD FOOTWEAR TO LIST OF XLY LEADERS... This week's messages have been focusing on the recent upside breakout in the Consumer Discretionary SPDR (XLY) and groups that are leading it higher. The last two messages showed gambling and hotel stocks taking the lead with some of them hitting record highs. I also mentioned autos and footwear as two other recent leaders. I'll come back to autos because that needs some clarification (along with a caveat). I'm going to focus mainly on footwear today. I'm also going to build on the theme mentioned earlier in the week with gambling stocks that reduction in trade tensions between the U.S. and China may have a lot to do with the resurgence in several of these economically-sensitive stock groups. And the cancellation of impending tariffs.
Chart 1 shows the Dow Jones US Footwear Index surging to a new record this week. The chart shows the index achieving a major bullish breakout on late September by rising above its April and July peaks to establish a new record. It hit another high earlier this month to resume its new uptrend. The line in the upper box is a relative strength ratio of the footwear index divided by the XLY. And it shows that upside leadership starting in August (up arrow). That's also when footwear stocks started to outperform the S&P 500 for the first time in a year. What happened in August to start boosting footwear stocks? That's when tariffs on clothing and footwear that were supposed to start during December were postponed. They were cancelled earlier this month with the completion of the phase one trade deal with China.
CROCS AND NIKE ARE FOOTWEAR LEADERS...Two leading stocks in footwear are shown below in order of relative strength. Chart 2 shows Crocs (CROX) surging to a new record this week; its relative strength ratio in the upper box shows it outperforming the S&P 500 since June. It also has the highest SCTR rank (97) in the footwear group. [Footnote: SCTR stands for StockCharts Technical Rank which uses six technical indicators over different time frames to determine relative strength of a stock or index. SCTR provides a simple way to search for market leaders].
Chart 3 shows Nike (NKE) also hitting a record this week before selling off today. The stock is down today despite a strong earnings report last evening. An overbought reading in its 14-day RSI (upper box) also suggested some profit-taking was due. According to the Wall Street Journal, Nike sales jumped 10% in the third quarter. And North American revenue rose 5% from a year earlier. Apparently, some traders were looking for more. The WSJ, however, points out that that Nike's "fastest -growing region was Greater China, where revenue jumped 20%".
SKETCHERS MAY BE BREAKING OUT...The third footwear leader may be on the verge of a bullish breakout of its own. The weekly bars in Chart 4 show Skechers USA (SKX) trying to clear its early 2018 peak near 43. A decisive close above that peak would put the stock at the highest level in four years; and would constitute a major bullish breakout. Despite a high SCTR rank of 96, the stock still looks relatively cheap. Its relative strength ratio in the upper box is just turning up after several years of underperformance. That looks like a potential bargain for shoppers in footwear.
TESLA IS ONLY AUTO LEADER... I've made several references to a strong auto group this week. In fact, the DJ Auto Index has the highest SCTR rank of 97 in the XLY; and has risen to the highest level in eighteen months. That, however, is deceiving. So we have to look beneath the hood to see what's driving those gains (pardon the puns).
The weekly bars in Chart 5 show Tesla (TSLA) hitting a new record this past week. The stock has had an incredible run by doubling in price since June. Impressive as that is, it's not reflective of auto stocks in general. No other auto stock in the group has reached a 52-week high. And all of them have SCTR rankings below 60 (which reflects average performance). Ford and General Motors have SCTR ranks of 32 and 30 which reflects weak performance. And both are well below their highs for the year. So if you're looking for a new auto stock for Christmas, shop very carefully.
CHINA LINK TO TESLA... The WSJ today suggests that "the recent runup in Tesla's share price has been driven in part by enthusiasm about production at the new Chinese factory, sometimes referred to as Gigafactory 3...That's key to the China bull thesis for investors in Tesla".
Recent improvement in China's fortunes may also be linked to buying of other cyclical groups written about this week. Wednesday's message showed a close correlation between gambing stocks (with strong ties to Macau) and rising Chinese stocks. The three hotel stocks written about yesterday (Hilton, Hyatt, and Marriott) have a big footprint in China. And it's getting bigger. Apparel and footwear stocks are also benefiting from lower tariffs.
GLOBAL IMPROVEMENT... Easing trade tensions between the U.S. and China are contributing to a resurgence of stocks in Asia and Europe, which reflects more optimism on the global economy. The Stoxx Europe 600 Index (including Britain and the continent) hit a record high this week. While Asian stocks are leading Emerging Markets iShares (EEM) to the highest level in eighteen months. And U.S. stock indexes are trading in record territory.
CRUISING TO A NEW RECORD... I've spent the week writing about XLY leaders. Here's one more. Cruise ship stocks are ending the week on a strong note. A strong earnings report from Carnival (CCL) is pushing that stock 7% higher today. Other cruise liners are rising with it. The strongest chart belongs to Royal Caribbean Cruises (RCL). The weekly bars in Chart 6 show that cruise leader sailing through previous highs into record territory. Bon Voyage.
