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Monday, December 31, 2012

Throw the Manual Out If It Doesn't Work

If the widely accepted manual used to interpret the markets doesn't work, throw the darn thing out in 2013! 

Retailers' run, without a doubt, will be over soon, but those that rush to pronounce it dead might be early.  Ignore opinion and follow the message of the market.  Negative (red boxes) and positive (green boxes) tend to setup declines and rallies in equities, respectively.  The positive divergence hints that the stock market rally might not be over.

Chart:  Retail Stocks to S&P 500 Ratio

Headline: Retailers' Run May Be Over, Says Analyst

After a strong 20 percent run-up in consumer discretionary stocks this year, one analyst is predicting a more challenging 2013.

"We've had a great three-year run in consumer discretionary in terms of both sales growth and profitability gains," said R.J. Hottovy, an analyst with Morningstar. "So we think there's a pullback in store for 2013."

He also said consumers could continue to put off discretionary purchases particularly if tax rates go up and paychecks shrink in January.

Dana Telsey of Telsey Advisory Group said consumer confidence will be important for retailers next year. "We need stability and some decisive actions to get the consumer comfortable again," she told CNBC.

Source: more


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