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Market Updates

Retailers Not Participating

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The markets continue move higher, and the Dow is up 47 and the Nasdaq 36. Technology is leading the charge, with most sectors up over 2 percent. Biotechnology is a lagging a little, and the Retail Index (RLX.X) is in negative territory.

Retail Index Daily Chart

The Retail Index was one of the first sectors to take out its May downtrend, and clear most of the technical junkyard. The 7/22 high seemed like a small point of contention, but that is where RLX has met resistance. If the index does in fact roll over, some bearish divergence would set up in the stochastic, suggesting a drop down to the 50-dma or 877 level.

Sears Point and Figure Chart

Demand took control of Sears (NYSE:S) in late 2000, and held the upper hand until March of 2001. Supply then took over by giving a sell signal, but the stock never dropped far enough to break the bullish support line. Sears got back on the bullish track by giving a buy signal in late April. That gave a bullish price objective of $49 that has remained intact, with the stock gaining $13, or 38 percent, since then. That puts the stock within $2 of that target, and the Retail Index is looking a little suspect. This doesn't necessarily mean Sears is going to sell off, but may very well start to stall.

J.C. Penny Point and Figure Chart

J.C. Penny (NYSE:JCP) is a good example of what can happen when a stock reaches its bullish price objective. After a sharp sell off, JCP consolidated for three months before finally giving a buy signal in January. The bullish price objective off of that buy signal was $21.50. J.C. Penny continued to climb for the next three months, but started to stall in May, gaining only 1 box. Since the stock was within $1.50 of its BPO, it could have been getting ready to break down. Not time to sell, but time to stay alert for a possible breakdown. The stock never did breakdown, and rocketed $9 higher. Selling just because the stock was near its bullish price objective would have prematurely exited a trader from this position, but once again it is time for bullish traders to stay on their toes. The stock is now resting against the bearish resistance line that has been in place since 1998. This stock has been resilient, but this could be formidable resistance, especially if the Retail Index starts to breakdown.

Jeffrey Canavan
Assistant Analyst

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