DISCRETIONARY SPENDING PICKING UP... Two groups that we like to see leadership coming from are technology and consumer discretionary stocks. Technology was the strongest market sector this week, which is a good sign. In Wednesday's update, I showed several individual technology stock leaders. Today, I'll be showing some leaders in the consumer area (which is mainly in retail). The first one is Lowes. The daily chart shows the stock rising above its May high to register an upside breakout. The weekly chart is even more impressive. It shows the stock breaking out to a twelve-month high. The weekly breakout also took place on rising volume, which is good.
KOHLS RISES ABOVE 200-DAY LINE... Another retailer that had a good day was Kohls. The daily chart shows the department store stock breaking through its 200-day moving average. The big volume bars for the last two days are also impressive and reflects heavy buying. The weekly volume bar also looks impressive. The weekly price bars shows the stock finding support along the lows of the past two years.
THE GENERALS RETREATED... The Dow isn't getting much help from its two generals -- General Electric or General Motors. Chart 7 shows GE having broken its 50-day moving average on increasing volume. That's not a good sign. The stock appears headed for a test of its May low near 27.5. That will be an important test for this market bellwether. Its falling "price relative" line (versus the Dow) shows that GE has been underachieving since May. General Motors has done much worse. GM remains well below its fourth quarter highs -- and hasn't provided any Dow leadership for the past year. The Dow could use a little more leadership from its two Generals.
BOND YIELDS TESTING 200-DAY LINE... Long-term bond yields have been jumping over the past three weeks. The next chart shows the yield on the 30-year T-bond having reached its 200-day moving average. We're watching that test very closely. We've seen some heavy selling of global bonds over the past few weeks. As I said last week, there's good and bad news in that. Short-term, rising rates are probably good for stocks. Longer-term, they're probably negative.
YAHOO SELLS OFF ON GOOD NEWS... Yahoo suffered some heavy selling this week despite a strong earnings report for the last quarter. That's what happens when a stock rises so fast that it can't satisfy market expectations. Yahoo has tripled since its fourth quarter low, and has doubled since its March low. The weekly chart shows a "double top" in its RSI line which is over 70. That's a sign of an over-extended stock that's due for a correction. The ADX line has also rising over 50. Although it hasn't turned down, an ADX level over 50 is another sign of an over-extended stock. The daily chart shows Yahoo gapping down this week on heavy volume. Why that concerns me a bit is that Internet stocks have been among the strongest technology groups. Any sign of a pullback there might be hinting that the technology rally is vulnerable as well to some profit-taking.
SUMMER RALLY VERSUS EARNINGS SEASON... The heart of the summer rally usually kicks in around the July 4 holiday. We're in that time frame now. After July, however, the summer rally often runs out of steam. The market has also entered the earnings season. That's not a bad thing unless the market has already discounted some bullish numbers. That leaves a lot of room for disappointment -- as was the case with Yahoo. Historically, two of the best months for taking some profits are July and January. I'd be inclined to use rallies during July to take a little money off the table; or, as an alternative, use sell stop orders to protect existing profits.
July 13, 2003
John J. Murphy, CNBC-TV's technical analyst for many years, and Greg Morris offer money managment and market services at MURPHYMORRIS.COM , email address orders@murphymorris.com .
Editor's Note
StockChart.com has acqured MurphyMorris.com, and eventually Mr. Murphy's commentary will be rolled into StockCharts.com.