The Monthly Charts Tell Sad Consumer's Tale

Expensive gas and the generally inflationary condition of the economy are taking their toll on the US consumer. This is confirmed in a big way by the technical charts of mid-range broad line retailers where their trends are clearly in the downward direction. In technical terms though, one can totally rule out that we have seen a bottom and the current trends will turn from down to up. However, it appears to me that the odds favor the existing trends remaining intact. This becomes quite clear when examining the long term monthly charts of these stocks.

Here is the monthly candlestick chart of Nordstrom, Inc. which shows the first 3 parts of a head-and-shoulders (HAS) reversal pattern. The final part – completion – has yet to occur; so it would be premature to even suggest the existence of the HAS pattern. However, the 8, 13, and 22 month moving averages are now moving in the downward direction, and this indicates that the long term trend is now down.

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Moving to the longer term view it appears that Nordstrom has a long way to go downward. The principles of technical analysis suggest that when (if) the neckline is broken, the stock will move to about /share, or less.

Similar but worse is the behavior of J.C. Penney. Here, the 35-month moving average has turned downward.

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Macy’s is also in a long term and sharp downtrend.

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All three of these mid-range department store retailers are in clear downtrends. In the meantime, the story for low-end retailer, Wal-Mart is much different. Wal-Mart has based for over 8 years, with support at /share before staging an important breakout. The trend in Wal-Mart is now up.

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The market is a discounting mechanism, and as such the market is discounting that the forced loan from the government (called “economic stimulus package”) will not do much to support the well being of the mid range broad line retail businesses. It is discounting that a lot of the government’s loan will be spent in Wal-Mart.

Today’s Market

After yesterday’s rally, the market stayed buoyant and it will be bolstered tomorrow morning by favorable quarterly results out of Google, which is trading up over 10% after hours. A worthy leader, technology stocks, has taken hold of this market. Now the S&P 500 will open near resistance with the tail wind of large cap leader Google, reporting favorable results. And here you can see that Google will probably open tomorrow at its own resistance level, where 500 was either support or resistance for more than 6 times over the last two years.

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With options expiration and all the inherent excitement generated by Google, tomorrow will likely be an important day for the stock market.

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