he continued improvement in the US economy, coupled with lower unemployment and a rebound in the housing market, is fueling hopes for an uptrend in the retail sector, and MoneyShow's Tom Aspray highlights a few stocks that could benefit.
Stocks rebounded impressively Tuesday as technology shares led the market higher and bargain hunters stepped in to buy. The major averages need a close above last Friday's highs to signal a further push to the upside.
The technical outlook does allow for more choppy trading over the near term and the futures are lower before the opening. It would likely take a daily close in the Spyder Trust (SPY) below $149 to signal a deeper correction. As I noted a couple of weeks ago, there is a seasonal tendency is for stocks to correct in February but a pickup in volatility is likely before a top is in place.
Though quite a few stocks are overextended as 79.5% of the NYSE stocks are above their 50-days MAs, which is down from over 85% a few weeks ago. There are also some stocks that appear to have just recently completed their corrections from the highs last fall.
The retail stocks showed some nice relative strength Tuesday as the SPDR S&P Retail (XRT) closed Tuesday well above last week's highs on above average volume. These two retail stocks look ready to rally 10-20% and offer a favorable risk/reward for more aggressive investors.
- In January, XRT pulled back to the 1st quarter pivot at $62.26 (see arrow) before breaking through resistance at line a.
- The 127.2% Fibonacci retracement target just above $67 was hit last week.
- The weekly starc+ band is at $69.07 with the monthly starc+ band at $72.33.
- The daily relative performance held the daily support, line b, in the middle of January before moving back above its WMA.
- The on-balance volume (OBV) broke through seven month resistance, line c, in January and has just overcome the resistance (line b) that goes back to March 2012.
- The weekly studies (not shown) are also positive.
- There is initial support now at $66.20 with the monthly pivot at $65.51.
Target Corporation (TGT) gapped higher Tuesday and closed strong. The quarterly R1 resistance is at $62.88 with the daily downtrend, line e, at $63.15.
- There is further resistance at $64.50 and then at $65.80, which was last September's high. In 2007 TGT had a high of $70.75.
- The daily relative performance appears to have completed its bottom formation, line f and has moved back above its WMA.
- The volume was the best Tuesday since early January as the OBV is back above its WMA.
- A move in the OBV above its downtrend, line g, should confirm a stronger rally.
- There is minor support now at $62.00 with the quarterly pivot at $60.44, which was tested last week.
Click to Enlarge
Tumi Holdings (TUMI) is a $1.54 billion apparel and footwear company that specializes in travel accessories. It has a beta of 3.5 and reports its earning on February 25.
- TUMI hit a low of $19.44 in early January, which was just above the 61.8% Fibonacci support at $19.23.
- The flag formation, lines a and b, was completed in the middle of January and price pulled back to the breakout level last week.
- The September high was $26.98 with the 127.2% Fibonacci target at $29.
- The relative performance confirmed the price action by breaking its downtrend, line b.
- With the strong close Tuesday the RS line is close to moving back above its WMA.
- The daily OBV has been above its WMA since late November and a move through resistance at line c would be bullish.
- The weekly studies (not shown) also show formation consistent with the completion of a continuation pattern.
- There is first support now at $22-$22.20 with further at $21.50.
What it Means: The positive action in many of the retail stocks, including the department stores, suggest a renewed interest in the consumer discretionary stocks. Many of these stocks will confirm new intermediate-term up trends with a higher close this week. I would look to buy on a slight pullback and recommendations were tweeted before the opening.
How to Profit: For Target Corporation (TGT), go 50% long at $62.04 and 50% long at $61.44, with a stop at $59.57 (risk of approx. 3.5%) Cancel if $63.30 is hit first.
For Tumi Holdings (TUMI), go 50% long at $22.44 and 50% long at $22.12, with a stop at $21.42 (risk of approx. 3.9%). Cancel if $23.780 is hit first.
Portfolio Update: From the December 18 column, should be 50% long the SPDR S&P Retail ETF (XRT) at $62.74 and 50% long at $62.46. Use a stop now at $65.18 and sell ½ at $68.88, a slight change from the prior order to sell ½ at $69.74.
Editor's Note: If you'd like to learn more about technical analysis, attend Tom Aspray's workshop at The Trader's Expo New York, February 17-19. You can sign up here, it's free.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.