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US Consumer Playthings Fall Out of Favor
There Must be a Reason

The stocks of companies that produce expensive playthings for the average US consumer are falling out of favor. From snowmobiles, boats and pool tables, to Winnebago’s and motorcycles – these stocks have entered their own little bear market in 2005. As the general markets around the world look increasingly weaker, US home equity evaporates on a daily basis, and money becomes more expensive to borrow; it appears that this bear market has only just begun. Their long term charts are featured in this week’s Market Wrap Up.

I’ve come to know some folks who love their Harley Davidson Motorcycles. Their following in the US is impressive, and their place in American culture is not to be denied. However, in spite of this, the long term weekly stock chart of the company shows a pattern of distribution. Since this is a heavily shorted stock, it is not surprising that after topping, this stock has shown many a sharp bear market rally. Yet, a look at the 3-year weekly chart leaves little doubt that the long term trend is now down. A break of the down trendline as shown would change the long term prognosis from bearish to bullish. There are key technical support levels at 44 and 38 for HDI.

As with Harley Davidson, Brunswick Corporation appears to be a well run operation. Similarly, after topping early last year, their stock chart is trending decisively down as the stock now resides below both its 40 and 10 week moving averages. Similar to HDI, 34 is a key technical support level.

Marine Products Co., a manufacturer of fiberglass powerboats, is showing similar technical characteristics, where 9 is a key technical support level. The top was put in in early 2005.

Snowmobile producer, Polaris has the same technical chart as the others. There’s a technical support level at 42.5.

And there is a similar chart with Winnebago. Twenty-six (26) is a key technical support level. 

These companies all have the same chart and the same fundamental characteristics. The fundamental characteristics are that they produce playthings for the US consumer where a loan is generally needed for its purchase. These are well known companies that are generally well run. So when their charts all indicate similar bearish characteristics it is probably suggesting a weakening in the US consumer. This supposition would carry more weight if the technical support levels indicated in the charts above were broken decisively to the downside.

The outlook is less bearish thus far for many companies that rely on discretionary (non capital) consumer spending, as indicated in the charts of Six-Flags and Speedway Motor Sports, Inc.

Today’s Market

First, with gold and silver getting hammered it may be a good idea to look at the gold bugs index’ ($HUI) big picture going back to the bottom formed in late 2000. The chart below depicts a long term Elliott wave pattern indicated by the red roman numerals. This count suggests that we are currently in Wave III up. Perhaps the marker of 401.69 indicates the completion of Wave 1 up within Wave III up. It would be expected that the Wave 2 down correcting Wave 1 up would be of longer duration than a couple of weeks, since Wave 1 up lasted about a year. While the recent correction from close up appears to be devastating in its price action, the bigger and longer term picture gives some better long term perspective. In my view, we’re a long way from declaring an end to the bull market in precious metals stocks. It may be relevant to note that once the Wave 2 down correction is completed, the next wave will be Wave 3 of Wave III. The prognosis would then be quite bullish. During the correction, potential retracement levels are 313 (~38%), 285 (~50%), and 258 (~62%).

Today’s action saw a wonder rally with stocks finishing up on roughly average volume. Evidence suggests that today’s action will bring on some more buying pressure by momentum players. Check for yourself, but it appears likely to me that today will be declared an Investors Business Daily (IBD) “follow through day.” This should bring in legions of buyers of the momentum variety. The market will be the ultimate judge, but once this rally plays out, it will set up one of the best selling opportunities of a generation.

Today’s action had the feel of being based on the prospect for lower interest rates as out performers included homebuilders, banks, and utilities. In spite of this the interest rate on the 10-year note was down only marginally.

A bit of a trend was broken over the last few days and that is the trend of stocks and gold heading in the same direction. For the short term, they seem to have parted company as stocks are heading up and gold is heading down.

Notable up indices also included small caps (up 2.3%), the Nasdaq composite (up 2.1%), and the Dow transports (up 1.6%).

Two weeks ago, a case was made for a bounce in the $US Dollar. While the occurrence of a bounce in the dollar is not surprising, the difficulty within the bounce is negative for US dollar bulls (are there any left?). While the dollar is going up, it is going up in pain!

Finally, today’s action saw all of the capital playthings’ stocks going up. Winnebago (up 1.8%), Brunswick (up 0.64%), Harley Davidson (up 1.3%), Marine Products (up 1.6%), and Polaris (up 1%).

Have a great evening.

Martin Goldberg

Copyright © 2006 All rights reserved. Martin F. Goldberg, MS, P.E. Market Analyst Expert Page Commentary Archive Email

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