ChartWatchers

EARLY BULLISH SIGNS EMERGING?

Chip Anderson

Chip Anderson

President, StockCharts.com

Spotting tops and bottoms is perhaps the best reason for utilizing technical and sentiment indicators in your investing and trading arsenal. The first signs of a bottom forming can be subtle and I'm beginning to see a few. Consumer discretionary stocks, which have been relative laggards during the market weakness, are showing slight signs of relative strength and on a longer-term weekly chart have printed a long-term positive divergence. Take a look at Chart 1:

Given the steep increase in crude oil prices over the first half of 2008, it's surprising that consumer discretionary stocks have held up as well as they have on a relative basis. The Conference Board Consumer Confidence Index increased in July (reported July 29th as of July 22nd) for the first time since December. One month's increase doesn't make a trend, but it certainly bears watching. Consumer confidence is important not only because it reports the consumer's view of current conditions, but it also provides the consumer's view of future expectations. A further deterioration in crude oil prices would likely have a bullish effect on the consumer discretionary sector and by the looks of the crude oil chart below, further deterioration is becoming more likely.

If crude oil breaks that head & shoulders pattern to the downside, the measurement would be to the $98-$102 area. One of my favorite stocks in the consumer discretionary group from a long-term perspective is Starbucks (SBUX). At Invested Central, we trade stocks, we don't invest for the long-term. However, the technical picture of Starbucks (SBUX) is quite compelling for a longer-term investor. The name brand is obvious and on the heels of a horrible quarter, you can pick it up on the cheap. Take a look at the long-term weekly chart below:

Until next time...

Happy trading!

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More