Luxury Goods Provide Encouragement in Gloomy Market

By Louis Basenese

The markets will end the year deep in the red. If Thursday was the official end, the S&P 500 would check-out with a sickly 37.81% loss.

How could we possibly make lemonade out of those lemons? Leave it to us master juicers.

You see, the recent buying activity, albeit brief, pushed stocks over a key threshold. Technicians refer to it as market breadth - the number of stocks trading above a key metric (like their 52-week highs or their 50 day moving averages). And based on the numbers from Bespoke Investment Group, more than 50% of stocks in the S&P 500 now trade above their 50-day moving average.

That’s clearly a bullish indicator.

What’s most interesting though, is the fact that the consumer discretionary sector is one of the most bullish, with 65% of such stocks trading above their 50-day moving average.

Companies in this sector include producers of goods and providers of services we want, but don’t need. Think automobiles, high-end clothing, restaurants, hotels and other luxury goods.

According to BusinessWeek, the sector is up 12.62% over the last month. And individual stocks are up even more including boat manufacturer Brunswick Corp. (BC), purse retailer Coach, Inc. (COH), high-end hotelier Gaylord Entertainment Co. (GET) and the mid-life crisis magnet, Harley-Davidson, Inc. (HOG).

These stocks historically perform best in new bull markets, as they get beaten down the most during recessions.

So does the price action mean we’re entering a new bull market? Only time will tell. If nothing else, the recent strength is an encouraging sign amidst so much gloom and doom.

Comments

[Joseph Sherman:]

The question is where is this growth coming from? New wealth in China, Brazil and India are pushing demand for luxury products.

Feb 12 03:01 AM