Blue Nile (NILE) Sparkles

12/17/2010 9:26 am EST


Thomas Aspray

, Professional Trader & Analyst

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Chart Analysis: With just a week before Christmas, those who bought the specialty retailers this fall have even more to celebrate. On October 7, I published an article that looked at the recent seasonal pattern of the S&P Specialty Retail group between September and December. By October, this group had already risen dramatically from the 280 level as it had reached the 325 area, so I was looking for a pullback to the 315 level. Even though there was a setback, the low was 316. The uptrend then resumed in an impressive fashion as the recent high was at 362 with next upside targets in the 371 area. One of the stocks that I liked was the jewelry company Blue Nile (NILE) as it appeared to be basing and there was a very large short position in the stock. NILE has had a dramatic move from a low in late October at $40.86 to the recent high at $57.65. It has overcome all of the resistance levels I mentioned in October and has next resistance in the $58-$60 area.

What It Means: Though this seasonal pattern is still in force, the retailers typically will top before the end of the year. Nevertheless, many of the retail stocks I talked about still are acting well from a technical viewpoint, but if you are long stocks in this sector, I would advise using trailing stops and selling on strength.

How to Profit: If you are long NILE as suggested in the $42.80-$43.90 area, you should raise your stop to $49.92, and once NILE is back above $55.60, move the stop to $53.44 and sell at $58.40 or better. Mark your calendar for September 2011 when it will again be time to look at this sector.

Tom Aspray, professional trader and analyst, serves as senior editor for The views expressed here are his own.

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