If you are working on your list of New Year's resolutions, I have one to add -- never accept a fundamental story without first taking a look at the charts and indicators. Wells Fargo (WFC) - Get Report in a recent research report looked at the retail industry and favored four stocks that it felt could soar in 2017 under the Trump administration. The assumptions could be right, but let's take a few minutes to see if investors are tipping their hand by examining the volume and momentum patterns for Ross Stores (ROST) - Get Report , TJX (TJX) - Get Report , Burlington Stores (BURL) - Get Report and Ulta Salon, Cosmetics & Fragrance (ULTA) - Get Report .
In the one-year daily bar chart of ROST above, we can see that the retailer already has done well in 2016, but can it build on those gains in 2017? ROST is above the rising 50-day and 200-day moving averages. While prices made new highs in November and a retest in December, the on-balance volume line has diverged twice in the past two months: first in November, when it did not make a new high with prices, and then in December, when volume surged to more than 10 million shares. If prices do rally in the New Year to a new high above $70, we are likely to see a bearish divergence versus the momentum indicator.
In the three-year weekly chart of ROST above, we see both bullish and bearish signals. The price of ROST is above the rising 40-week moving average line, which is a plus. The OBV line on this weekly time frame has been moving up with the price action and both confirms that advance and tells us that buyers of ROST have been more aggressive. But when we look at the 12-week momentum indicator in the middle panel, we see a bearish divergence. Prices have made higher highs into year's end, but the momentum has made a lower high. This pattern of slowing momentum is telling us that the bulls are losing conviction. The bottom panel displays the moving average convergence/divergence oscillator. This indicator is bullish but looks like its next signal will be to liquidate longs. Strategy -- you can stay long ROST but bring your sell-stop up to a close below $64.
In the daily chart of TJX, above, we see a sideways trading range for much of the past 12 months. This sideways range takes a bearish turn in the final two months of 2016. The rally in November stops well short of the August zenith, and prices are barely able to hold above the 200-day moving average line. Prices are above the rising 50-day line, but it will not take much of a decline to break both averages. The daily on-balance volume line has much moved up in November and tells us that buyers have not been that aggressive. Momentum has not diverged from the price action, but another rally attempt will probably generate a momentum divergence.
The weekly chart of TJX above is leaning to the downside. Prices are above the flattening 40-week average line, but it might not hold for long. The weekly OBV line gives me more of a bearish bias when I look at it, and the MACD oscillator is not showing much price strength.
Jim Cramer and Jack Mohr, who co-manage the Action Alerts PLUS portfolio as a charitable trust, wrote in a recent post that the retailer's stock "has been range-bound over the past month or so" but TJX "remains on track to continue to deliver value to a consumer increasingly aware of price."
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In this daily chart of BURL, above, we can see the chart flirt with the $90 level, but the OBV line has not kept pace and the MACD oscillator suggests we should take profits on longs.
The weekly chart of BURL above is impressive. Prices are above the rising 40-week moving average line -- maybe too far above it. The weekly OBV line has been pointed up since January and confirms the rally until the most recent new high, which was matched with a new high on the OBV line. The MACD oscillator is close to another liquidate longs sell signal.
Finally, in the daily chart of ULTA above, we have mixed signals. While ULTA has stayed above the rising 200-day moving average line for much of the past year, ULTA has crisscrossed the 50-day average several times in the past five months. The OBV line has moved sideways the past four months, which suggests that investors have a neutral stance at this time. The MACD oscillator is positive.
The weekly chart of ULTA above is mostly positive and supports an eventual upside breakout on the daily chart. ULTA is above the rising 40-week moving average line. The OBV line on this time frame is positive, and the MACD oscillator is close to a fresh buy signal.
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