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Wal-Mart and Retail Index, both hit 52-week highs

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Discount retailer Wal-Mart (NYSE:WMT) $61.86 +2% broke to a new 52-week high today and that has had a bullish impact on the S&P Retail Index (RLX.X) as it too embarks on yet another 52-week high. Despite today's lower than expected consumer confidence numbers the retail sector has traded strong.

Wal-Mart Chart - Daily Interval

Shares of Wal-Mart (WMT) have been at the head of our hypothetical Dow portfolio that we started from the September 10th close (day before terrorist attacks) where we took a hypothetical $1,000 and invested it in each Dow component. The exercise was meant to help us perhaps understand what stocks/sectors may be the next leaders of a bull market phase and also understand what stocks/sector might be the weakest.

For those that have followed, the amount of rotation and shifting of favor in some stocks has been staggering, but a simple "labeling" of various stocks really has been profound.

Over time, the "theme" has really shown that retail is a MARKET favorite while telecom has been out of favor.

Hypothetical Dow Portfolio - $1,000 investment in each 09/10/01

Earlier today, Home Depot (NYSE:HD) reported earnings that beat estimates by a penny as revenues increased 29% to $13.49 billion, which was higher than consensus of $12.74 billion. The stock has been stuck near the $52 level for the bulk of the session, but when we review our Dow portfolio, we see HD and WMT "stuck" at the top of the leader board if benchmarked back to September 11th.

Back in September, the picture was rather different. Both AT&T (NYSE:T) and SBC Communications (NYSE:SBC) were near the top of the leader board, but in mid-October, both stocks began a rotation down and now reside at the bottom. A quick sector association to "telecom" was made and that group of stocks really has been under some heavy selling pressure in recent months.

On thing we've seen recently from the Dow Industrials is two "defense/aerospace" related stocks in United Technologies (NYSE:UTX) and Honeywell (NYSE:HON) begin a rotational move higher. Just months ago, both stocks were at the bottom of the heap, but both have been working their way higher and look to be gaining favor. As such, we've been making some observations of other "defense/aerospace" stocks where technicals are looking favorable.

Jeff Bailey
Senior Market Technician
Option Investor

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