STOCKS

These three retail stocks are already outperforming the markets as we enter what is historically a seasonally strong period for the retail sector.

Stocks staged an impressive rebound on Tuesday as the cash S&P 500 went from being down over 25 points to up almost 25 on the close. The Advance/Decline (A/D) numbers also closed solidly positive for the day. It was very encouraging that after a mid-day rally failure, the S&P was able to rally sharply in the last hour.

This increases the chances of a further rally over the short term, and if we get strong market internals, the A/D lines may complete their bottom formations.

The technology sector is showing good strength, but there is another industry group that is outperforming the S&P by a solid margin, but because of the pessimistic outlook for the economy, nobody seems to be noticing.

That industry group is retail apparel, which is historically strong during this time of year, and the RS analysis suggests that this year will be no different. Quite a few stocks in this group look good, and three stocks in particular are performing much better than the overall market. All of them reversed sharply to the upside on Tuesday.

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Chart Analysis: Since the close on August 8, the S&P 500 is up just 0.4% while the Dow Jones Retail Apparel Index is up 9.4%. That means it has averaged over a 1% gain for each of the past nine weeks.

  • The daily chart shows that after dropping below support at line b, the industry group reversed course to close with nice gains  

  • There is next resistance at 450 and a close above 464 will signal a test of the all-time highs in the 500 area  

  • The relative performance, or RS analysis, broke out to new highs on Tuesday after overcoming resistance, line c, in September. It has been in an uptrend since early in the summer

  • The daily on-balance volume (OBV) is acting weaker than prices, so volume on a further rally will be important. There is key OBV resistance at line e

  • There is fist support at 414 with stronger resistance in the 400-404 area

Under Armour Inc. (UA) is a well-known maker of performance apparel for the entire family, and since the August 8 close at $55.93, it is up a stellar 21.7%, causing those who are long UA to ask, “What bear market?”

  • The daily Starc- band at $60.86 was approached Tuesday when the early low was $62.50. UA then rallied impressively to close at $68.06  

  • There is next resistance at $75 and a close above $78.50 would confirm that the all-time highs at $82.95 will be challenged  

  • The RS analysis turned higher in late August and surged above its weighted moving average. It made new highs last week, line g, and turned higher Tuesday  

  • The daily OBV shows a potential bottoming formation, and volume did pick up last week. A break of the downtrend, line h, would be positive

NEXT: Risk-Controlled Entries for Two Other Retail Leaders

Tickers Mentioned: Tickers: UA, RL, WWW