Bon Ton (BONT)
Bon Ton Stores is an example of what is working well in today’s stock market. The chart pattern is a strong advance, followed by a basing pattern from October 2003 to March of this year. Since March, the stock has been in a tight basing pattern. The stock has broken out of its basing pattern this week, and if the market stays bullish, it should go substantially higher. It’s a bit extended from its breakout point (about 20). If it falls back below its base, that would invalidate the breakout. The chart is bullish and appears to have a good risk/reward ratio to go higher, yet it is relevant that most of the higher quality stocks in the department store category have already broken out. It could be the point at which the rally in retail is becoming old and the weakest stocks are breaking out.
A similar bullish chart as Bon Ton, Saks, Inc. has formed a cup with handle pattern and is not trying to break out of the pattern to new high ground. In the handle, advances have been on higher volume than the pullbacks, and this is bullish.
Nordstrom, Inc. has gone from about $8/share to over $35/share, a gain of over 400% in slightly more than 2 years. It has recently broken above its uptrend which is probably not sustainable. While there’s no reason to sell for those long of this stock, the only reason to initiate a new long position would be to “hop on board.” Yet in this market, for now, that’s been as good a reason as any.
A look at the 3-year weekly chart of JC Penney Co. makes me wonder if trees actually do grow to the sky. Since October, every time JCP has touched its 50-day moving average, buyers moved in and pushed to price back up. Of course, this trend must be given the benefit of the doubt until it is broken.
The retail bull market has not spared low quality stocks. GOT has advanced from less than a dollar a share to over $11/share. Yet it may be showing some early signs of weakness, as it closed a few cents below its 10-week moving average Wednesday. Its April high was tested in June on significantly lower volume, and while it’s too early to tell, this may be proven to be bearish.
Federated Department Stores
Federated Department Stores is in the process of making its steepest bullish run since it advanced from about 25 to over 75. What are these panic buyers seeing that has not already been seen?
A sector laggard, Dillards is one of the few companies in the department store sector that is showing significant weakness. The 10-week moving average has moved below the 40-week moving average. The volume patterns during this year show that the “down” weeks have come on generally higher volume than the “up” weeks.
The charts presented above pretty much summarize the department store sector. It’s all good! Below are the charts of Retail Ventures (RVI), and Target.
Practically all of the charts in the sector appear to be bullish, yet these companies are selling at historically high valuations of historically high earnings. And in all cases the dividends are either meager, or nonexistent. While several of these companies’ valuations can be justified by robust growth, they all can’t be growth companies. Can they?
The hot stocks stayed hot today as retailers and homebuilders led the general market higher. The Dow Jones US Homebuilders index closed at a new 52-week high and Pulte Homes broke out of a cup-with-handle pattern. The kid’s clothing retailers and department stores were strong on the back of generally strong June same store sales. Notable to the upside for kids cloths were Abercrombie and Fitch (+2.4%), American Eagle (+0.5%), Urban Outfitters (+0.4%), the Gap (+3.5%), and Limited Too (+1.5%). Laggards included Aeropostale Inc. which was down 6.5% in spite of two analyst upgrades in 2 consecutive days. The trading pattern in this stock is a tradable and (too) predictable trading range. After its run as a hot IPO, over the last year, the stock has traded in a 30% wide range, always making a slightly higher high and a slightly lower low.
Hot department stores included JC Penney and Nordstrom, up 3 and 2% respectively, on the news of good June same store sales. While I pointed to some weakness in the chart of Dillards above, short-term this stock may be due for a bounce. The recent stock market has been characterized by the ability of stocks to hold their support lines. In the rare occasion where a support is broken, stocks have typically come roaring back with fast and tradable rallies. Some occur quickly while others have to wait for some good fundamental news to act as a catalyst for a comeback. With today’s trading in Dillards, it now appears poised for such a rally.
When there is a preponderance of support lines that are broken and stay broken, it will be a significant signal pointing toward the resumption of the secular bear market. It has yet to happen though.
Today’s market showed tremendous resiliency in the face of the horrible and cowardly act of terrorism carried out in London, as the only major indices that were down were international, and the commodity-heavy Amex composite. Transports may have resumed their role as a laggard as they were down slightly in spite of lower closing oil prices (that were still above $60/barrel). The HUI was down slightly today, and it may be a bit overbought as it has failed to break its 40-week moving average for 4 consecutive weeks. My short-term view would change if the HUI closed above 210. The fundamental case for gold is as strong as the fundamental case for retailers at today’s valuations is weak. So when does a gain or a loss in the stock market become righteous?
This is a question for bigger minds than mine.
Have a great evening.
James J. Puplava Financial Sense™ is a Registered Trademark
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