What Are the Rich Buying?

With the strong uptick in consumer sentiment from the University of Michigan’s April data, MoneyShow’s Tom Aspray takes a technical look at several luxury retailers to see if the effect is trickling up.

It was another positive Monday for the stock market as the S&P 500 futures at 10 AM ET were down almost 14 points from Friday’s late trading but closed up 5.5 points for the day. The previous Monday, the futures were down 16 points intra-day but again closed positive for the day.

This suggests that stocks are being accumulated at lower levels even though weak outlook for earnings from JPMorgan & Chase (JPM) and disappointing numbers from Pfizer Inc. (PFE) dragged both stocks down close to 2.5%.

Still, it is an earnings-driven market for US investors while the Treasury market seems to be flooded with overseas buying as the yield on the 10-year T-note dropped to 2.57% on Friday in reaction to the monthly jobs report. Yesterday’s better-than-expected ISM Non-Manufacturing did help yields to rise a bit from the recent lows.

The technical outlook for the PowerShares QQQ Trust (QQQ) has improved, suggesting the unorthodox low from April 15 may have actually marked the end of its correction.

One of last week’s casualties was Coach, Inc. (COH) as it dropped 14% from last Monday’s close in reaction to its negative earnings revisions. What about the other companies that depend on the affluent buyers?

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Chart Analysis: The daily chart of the PowerShares QQQ Trust (QQQ) shows Monday’s strong close but it is still below the downtrend, line a, and the April 24 high of $88.21.

• This also corresponds to the 61.8% Fibonacci retracement resistance at $88.15.
• The daily relative performance dropped below its WMA in late February as the QQQ was making its high.
• The uptrend, line b, was broken in the middle of March and the RS line is now trying to bottom (line c).
• The daily OBV broke its downtrend, line e, four days after the lows.
• The longer-term resistance, line d, is also now being challenged.
• So far, the monthly pivot at $86.78 is holding and QQQ is now above its quarterly pivot at $87.34.
• There is more important support at last week’s low of $85.21.

The weekly chart of Coach, Inc. (COH) shows that last week’s drop violated the long-term support, line g, which goes back to 2011.

• COH closed on its weekly starc- band, which is at $43.61 this week.
• The spike low at $44 from early February was also violated last week.
• The monthly projected pivot support is at $39.51.
• The relative performance has stayed below the downtrend from the early-2012 highs, even though the stock price was attempting to consolidate.
• The RS line dropped to new lows last week.
• The weekly on-balance volume (OBV) broke its ten-month uptrend in the middle of January.
• The OBV is now back to the early 2013 lows and the daily OBV (not shown) is solidly negative.
• The monthly pivot at $46.47 now represents strong resistance with gap resistance in the $47 to $49.47 area.

NEXT PAGE: 2 More Luxury Retailers to Watch

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Tiffany & Co. (TIF) reported a fourth-quarter loss because of an arbitration ruling, which if excluded, would have meant a net earnings increase of 15% according to Motley Fool.

• The weekly chart shows that it peaked at $90.07 in March as the weekly starc+ band was tested for two weeks.
• The support, line a, that goes back to the July-2011 high is now being tested.
• The quarterly pivot at $86.92 has also been supporting prices.
• The weekly uptrend, line b, and the weekly starc- band are both in the $79 area.
• The weekly relative performance formed a lower high in March and then dropped below its WMA.
• The RS line has longer-term support at line d.
• The OBV made a new high in March, though actual volume (see arrow) was low as it was making its high.
• Both the weekly and daily OBV (not shown) are above their WMAs.
• The recent high and the monthly projected pivot resistance is at $89.70.

Sotheby’s Holdings, Inc. (BID) also depends on the wealthy as it just came to terms on Monday with major shareholder Dan Loeb. The stock was up 3.25% in Monday’s session on almost three times the average volume, closing at its daily starc+ band.

• BID is currently trading above its 20-week EMA and with the quarterly pivot a bit higher at $45.35.
• There is stronger resistance from early March in the $48.60-$49.05 area.
• The weekly relative performance slightly violated its uptrend, line g, three weeks ago.
• The RS line has turned up sharply and is testing its declining WMA.
• The OBV shows a similar formation though it did hold support from the 2013 lows, line h.
• The daily OBV does appear to have completed its bottom formation.
• The weekly uptrend, line f, was tested two weeks ago as BID dropped between the 38.2% and 50% Fibonacci support level.
• This is often a good buying zone when a stock or ETF has a pullback within a major uptrend.

What It Means: It is difficult to draw any strong conclusion about the buying preferences of the very wealthy though other data suggests they are doing quite well. The charts of two other luxury retailers Michael Kors (KORS) and Kate Spade & Co. (KATE) look quite similar to that of Sotheby’s Holdings, Inc. (BID).

I have been looking for increased consumer buying to give the economy a boost in the 2nd quarter and would look to buy the Select Sector SPDR Consumer Discretionary (XLY), as well as Sotheby’s Holdings, Inc. (BID).

As for the PowerShares QQQ Trust (QQQ), an old friend and former rocket scientist John Ehlers, has added new features to his StockSpotter analysis. I told him I would be discussing the QQQ today and he provided his two-week projection for QQQ.

How to Profit: For Sotheby’s Holdings, Inc. (BID), go 50% long at $42.14 and 50% at $41.76, with a stop at $39.83 (risk of approx 5.1%).

For the Select Sector SPDR Consumer Discretionary (XLY), go 50% long at $64.08 and 50% at $63.76, with a stop at $61.67 (risk of approx 3.5%).

Portfolio Update: Should be 50% long PowerShares QQQ Trust (QQQ) at $86.88 or better as the second buy at $84.72 was just missed. Use a stop at $82.37.