RTH Retail Weekly Chart Ascending Triangle Bull Flag Upper Band Violation

Retail stocks have launched like a rocket over the last month and through earnings releases over the last two weeks. The wealthy, that own stocks, have become filthy rich over the last few years from the Fed and other central bank money printing and continue to pump consumer discretionary stocks, XLY, such as KATE, KORS, JWN and TIF, higher. The rich have to spend their dough on something so they go for the leather, bozzles, trinkets and beads. Interestingly, at the same time, consumer staples stocks, XLP, catapult higher as traders trip over each other each one thinking they are smarter than the other buying defensive and dividend stocks. Traders think they will be safe in a market downturn in stocks such as CL or PG which manufacture products you need regardless of whether the economy is strong or weak. You always need soap, detergent, hygiene products and toilet paper.

In a normal economic cycle, however, staples should be more beaten down and unloved and the rotation occurs into these stocks as the economy turns south. The central bankers have bloated all asset classes into bubbles distorting markets so many tried and true market relationships no longer apply. The move higher in RTH is astounding. The vertical side from 54 to 62 is 8 handles so 62+8 is a 70 target. The tight standard deviation bands helped squeeze out the upside move but price has violated the upper band needing to return to the middle band at 62.5 and rising at a minimum. The neon blue bull flag played out with leg one from 58 to 64, then sideways consolidation with a drift lower, then second leg begins at 61-ish targeting 67-ish; achieved.

Over the multi-month period, the red lines show negative divergence remaining. The recent spurt creates momo in the RSI, MACD line and histogram so one to five weeks may be needed to burn off the euphoria and create negative divergence for the nearer term ot match the longer term negativity. Retail stocks did a lot of the heavy lifting of the overall market last week; big gains in TGT and WMT. Typically, seasonality-wise, the retail stocks are sold off in early December (sell the news). The chart has near term momo but the expectation would be for a top to come into play for retail stocks during December.

The huge move higher is perplexing. Folks are jamming into dividend stocks like consumer staples for perceived safety but at the same time chasing luxury brands since the rich have become filthy wealthy courtesy of the Fed. Once the market rolls over, consumer staples will likely not be the safe haven that everyone thinks since the Fed's easy money has bloated all stocks, sectors and asset classes to high levels. In the upcoming downturn, most everything will likely drop. For now, retail stocks are having a party. West Coast dock problems for holiday goods? No worries, traders are simply buying stocks these days with reckless abandon and no worry or concern. There is no reason to worry since central bankers plan on sending stock prices higher forever. The ECB and PBOC delivered party juice last week. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.