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Market Outlook
The Week Beginning Monday,
November 22, 2010



The Week Ahead



Preface

I believe that it is important to point out to all my readers, especially those who are not already members of S.O.M.E. (as members are already well-aware of my trading strategy!), that the more volatile the market becomes, whether it trades up or down, is more beneficial to us, as the returns on our options increase dramatically, as observed throughout June and July, so far.

I must say I am a great supporter of the bulls, but will play-along with the bears to extract as much value from our options plays, as possible. I am a great believer in things moving forward and improving as time progresses but I also know that we have to play-the-game to extend our profits. The only catch in this type of market is “knowing” or realizing in which direction it will take, and it seems that we have been able to fulfill this decision in most cases, to gain our profitability.

Key Events This Week



up and coming

This Week’s Economic Reports

There are still quite a few major economic indicators available this week, which are:-

Monday –

  • There are no major economic reports scheduled for Monday

Tuesday –

  • gross domestic product, and

  • existing home sales for October.

Wednesday –

  • Weekly report on U.S. petroleum supplies,

  • October figures for new home sales,

  • Durable goods orders,

  • Personal income and spending,

  • Weekly report on new jobless claims,

  • Consumer sentiment in November, and

  • The Fed will release the minutes of its Nov. 3 Federal Open Market Committee meeting

Thursday –

  • The market is closed for the Thanksgiving holiday on Thursday.

Friday –

• There are no major economic reports scheduled for Friday.



earnings

This Week’s Major Earnings Reports

Note:-All earnings dates listed below are tentative and subject to change.

Monday –

• Tyson Foods Inc. (TSN), Analog Devices Inc. (ADI), Brocade Communications Systems Inc. (BRCD), Focus Media Holding Limited (FMCN), Hewlett-Packard Company (HPQ), Jack in the Box Inc. (JACK), La-Z-Boy Inc. (LZB), and Pacific Sunwear of California Inc. (PSUN)

Tuesday –

• Campbell Soup Company (CPB), Cracker Barrel Old Country Store Inc. (CBRL), Hormel Food Corp. (HRL), TiVO Inc. (TIVO), and Guess?, Inc. (GES).

Wednesday –

  • Deere & Co. (DE) and

  • Tiffany & Co. (TIF).

Thursday –

• The market is closed for the Thanksgiving holiday on Thursday.

Friday –

• There are no major earnings reports scheduled for Friday.



the week ahead



Outlook for This Week

Traders expect a short and sweet Thanksgiving week, where investors will be reluctant to make new bets and markets could actually trade quietly.

The holiday shortened week, however, does hold a few important events including the release of the Fed's November meeting minutes, where it decided on its quantitative easing program. There is also a condensed calendar of important data including existing home sales, durable goods and revised third quarter GDP.

Talks in Ireland between the European Union, IMF and European Central Bank could result in news of a bailout to solve that country's banking crisis.

The U.S. Treasury auctions another $99 billion in notes Monday through Wednesday, and Hewlett-Packard releases earnings Monday as one of the last few important earnings reports of the quarter. Investors will also turn their attention to the consumer andtail, as the holiday shopping season officially kicks off on black Friday, the day after Thanksgiving.

Recap of Past Week

In the past week, the focus was in part on China's efforts to curb rising inflation through new tightening measures. Fears that China's actions would slow global growth hit commodities, many of which ended lower on the week. Oil was down nearly 4 percent at $81.51 per barrel, and gold fell 1 percent to $1,352.20 per ounce.

The Dow gained 10 points in the past week to finish at 11,203 and the S&P 500 was less than a half point higher at 1199. The Nasdaq Composite Index (COMP) was down by all of nine one-hundredths of a point to 2,518.

markets111910



The other focus has been Ireland, the latest flashpoint in the European sovereign debt crisis. The expectation of a resolution steadied the euro, and it was basically unchanged against the dollar on the week.

While the major averages finished this past week basically flat, the markets offered their own drama: a big sell-off on Tuesday because of worries about China and Ireland and a big relief rally on Thursday.

And there was the return of General Motors (GM) as a public company, thanks to a big initial public offering that saw the size and the price rise substantially.

The positive happenings from last week are:-

• GM's public offering, even if the stock struggled to hold above $34.

• Thursday's big rebound.

• A second week in a row with initial jobless claims under 440,000.

• Some steps toward rescuing Ireland and its teetering banking system.

• Better-than-expected U.S. retail sales.

• A robust report on manufacturing in eastern Pennsylvania, Delaware and Maryland.

The negative happenings last week are:-

• Lack of resolution about Ireland's banks and government debt.

• Escalating rhetoric between Chinese officials and their U.S. counterparts, especially Federal Reserve Chairman Ben Bernanke.

• Weak housing starts, especially multifamily starts.

• A weak report on manufacturing in New York state.

• Higher interest rates.

The Week Ahead

"As we work our way through next week, my guess is we have clarity on Ireland and hopefully that doesn't just leapfrog us to Portugal and Spain," said Art Hogan, managing director at Jefferies.

The euro could firm in the coming week, if there is an agreement, said Michael Moran, senior foreign exchange strategist at Standard Chartered Bank, but he does not expect it to hold gains.

"The projection is it's going to take a more bearish tone from there," he said. He echoed the concern that Portugal could be next to face crisis, and the big fear—that much larger Spain may ultimately need help.

"I think 2011 is going to be harder than 2010 in terms of the sovereign crisis. Ultimately there has to be a holistic approach. This band aid approach isn't a good one," said Greg Peters, head of global credit research at Morgan Stanley.

The Fed's quantitative easing policy also continued to come under fire, including from Congressional Republicans who seek an end to the program. There will be continued focus in the week ahead on the easing program, under which the Fed is buying $600 billion in Treasury securities in an effort to drive rates lower and reflate asset prices.

Fed Chairman Ben Bernanke Friday fought back against critics by suggesting China and others are causing problems by stopping their currencies from strengthening.

"Before this, the U.S. simply tried to use jawboning and threats to get the Chinese to move, but now with QE their policy action is actually having a material impact on Chinese growth and inflation," said Boris Schlossberg of GFT Forex. "...that is why the war of words has really escalated because for the first time, U.S. actions are actually having material impact on Chinese economic policy, and they don't like that because they're seeing very, very strong inflationary pressures."

"I don't think it was intended. I think it's in a way an unintended policy consequence that happens so many times in the marketplace," he said.

Since the Fed started its asset purchase program, interest rates have firmed, opposite to the desired effect. With the exception of the long bond, rates moved higher into the past week. The 10-year was yielding 2.871 percent, after touching 2.9 percent Thursday.

"Rates look too high to me given what the Fed's doing in terms of purchases," said Peters. "I think on the margin, stocks are the clearest expression of the quantitative easing trade. The dollar is tough. I still think the pressure is going to be on the dollar, but the truth is it's hard to get too tough on the dollar as the euro is under stress."

"Honestly, the biggest risk we have globally is basically political risk," said Peters. He said the bond market is reflecting that. "There's concern about the Fed. If there's ever a whiff that the Fed loses its independence, it's game over."

Earnings Reports

Earnings should continue to be positive!

Retailers -- especially high-end retailers -- in the past few weeks have beaten estimates for the most part, and many are sounding like AnnTaylor (ANN) CEO Kay Krill, who pronounced herself "very positive about the holiday season."

That said, companies who market to lower-income shoppers concede that shoppers are very cautious and likely to wait until the big discounts start to show up.

But retailers aren't alone. Bank earnings are higher. Automakers are seeing business steadily improve. Technology companies are seeing decent business, although Cisco Systems (CSCO) is worried about the next few months.

In short, there's talk that the recovery, which went to sleep over the summer, is reawakening.

Expectations for this Week

The SPX and Long-Term Resistance

Introduction

Well, it could have been worse. U.S. stocks plunged Tuesday morning as negative headlines from overseas generated a "risk off" mentality among traders. In fact, by Wednesday's close, risk in the market was growing. With Friday's expiration looming, and heavy put open interest just below Wednesday's closing prices, major exchange-traded funds such as the SPDR S&P 500 (SPY) and iShares Russell 2000 Index (IWM) were exposed to a delta-hedging decline. Delta-hedging is a process in which sellers of options sell an increasing quantity of an underlying equity as it moves closer to out-of-the-money put strikes in order to remain delta neutral. Such activities can snowball, particularly around expiration.

Delta-Hedge Selling

But thanks to positive economic data and better overseas news, equities gapped higher Thursday morning. In a market where weak hands are holding stocks, delta-hedge selling would have been the more likely scenario. However, as we have noted in this space during the past several weeks, stronger hedged buyers appeared to drive the rally from the August lows, and with put protection firmly in place, panic selling is less likely.

<The SPX

The 3.8% decline from the S&P 500 Index's (SPX) 1,225 closing high earlier this month pushed the SPX down to its 40-day moving average, which coincides with a former area of congestion from mid-to-late October (see first chart below). As we move into a holiday-shortened week, this area is potentially supportive if another pullback occurs.

mo112210



Longer-term resistance levels still reside just above last week's SPX close, which could continue to put a lid on the market. Specifically, the round-number 1,200 level – an area of congestion in 2005 – the 80-month moving average at 1,206, and the 1,230 area, site of the 61.8% Fibonacci retracement of the 2007 high and 2009 trough, could collaborate to cap the market's progress.

mo2-112210



Volume Ratios

Complicating matters in the short term is that the 20 day buy-to-open put/call volume ratios for the PowerShares QQQ Trust (QQQQ), SPY and IWM have rolled sharply lower. This means that hedge funds are not aggressively accumulating shares like they were weeks ago.

It is IWM that has seen the largest rollover in the ratio, suggesting small caps could underperform in the short term without the support of the hedge fund buying. But our analysis of buy-to-open option activity on QQQQ suggests continued interest in the technology sector. From a longer-term perspective, this activity is bullish, as hedge funds still appear to be underweight, suggesting there is fuel on the sidelines.

mo3-112210



High-Frequency Traders

With retail investors pulling cash out of domestic equity funds for 28 consecutive weeks, it is the under-invested hedge funds that have the capability to drive significant rallies. Without more support from this crowd, the market is exposed to the mean-reversion games of the high-frequency traders, especially with the defined areas of support and resistance as discussed above in play.

The VIX

Finally, with November expiration now a thing of the past, put options purchased to guard against a correction have expired for some investors. The good news is that portfolio protection is cheap as we enter the week, with the CBOE Market Volatility Index (VIX – 18.04) trading at its lowest level since April. During the past month, the VIX has tended to move higher from this area, as demand for put protection increases when portfolio insurance is viewed as cheap. Such actions could pressure stocks in the near term, but could be healthy from a more intermediate-term perspective.

mo4-112210



Holiday Shopping

Expectations about Black Friday, when Americans traditionally get serious about holiday shopping, could sway stocks next week if it looks like the economy will get a pop from consumer spending.

Even though light volume will define trade during the holiday-shortened week of U.S. Thanksgiving Day on Thursday, investors will watch to see if retail sales appear strong enough to give the market a Santa Claus rally.

The lighter-than-average volume expected this week could lead to exaggerated moves in the market after a week of sharp losses and advances.

Further gains would resume an uptrend that began at the end of the summer, with the Standard & Poor's 500 index up 14 percent since Aug. 31. The market was little changed this week and suffered losses the week before.

"Bullish sentiment toward holiday sales is the most likely catalyst for the cyclical bull market to resume, so a lot rests on that," said Chris Burba, short-term market technician at Standard & Poor's in New York. If sales seem weak, "this dip could turn into something bigger."

Retailers have been optimistic in their forecasts for holiday sales, and investors will want to see evidence to support those forecasts as worries about consumer spending weigh on the economic outlook.

At a rate of 9.6 percent, unemployment is seen as one of the biggest drags on the U.S. economy.

Target Corp (TGT) last week was the latest retailer to give an upbeat forecast, saying it expects to post its best same-store sales in three years during the period.

The day after Thanksgiving traditionally marks the start of the U.S. holiday shopping season and is called Black Friday because retailers make enough sales to get their accounts into black ink.

Shoppers are expected to flood stores in search of bargains while retailers fight for sales. Target, for instance, is using a built-in discount for shoppers who use its store credit card.

"It's a very competitive retail environment ... a sign people are slugging it out" for every last sale, said Sasha Kostadinov, portfolio manager at Shaker Investments in Cleveland.

The S&P 500

With the recent market weakness, the S&P 500 has had trouble staying above 1,200 and ended just below that level on Friday.

A break above the mark, however, "would be a good sign," signaling bullish momentum, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

Ireland and the Euro

A deal to help Ireland cope with its battered banks will be unveiled next week, EU sources said on Friday. Ireland will publish the details of a four-year fiscal plan to save 15 billion euros at roughly the same time.

Avery Shenfeld, senior economist at CIBC World Markets in Toronto said Ireland is a "peek as to what still lies ahead economically for larger Spain, which along with Portugal could be the next target for bond-market vigilantes.

The euro is likely to remain stable next week after rising for three straight days against the dollar as worries about debt-strapped Ireland have eased, although lingering worries about the risk of contagion to other euro zone economies could curb further gains.

The euro on Friday rose across the board. In late afternoon trading, the euro was up 0.3 percent at $1.3684, after rising as high as $1.3733 on trading platform EBS.

After sliding to a seven-week low of $1.3446 earlier in the week, the euro ended the week little changed against the dollar. On the month, however, the euro was still down 2 percent.

Hopes that Ireland was near a deal to get tens of billions of euros from its European partners and the IMF helped push the euro above $1.37 overnight.

Momentum, however, stalled ahead of resistance around $1.3750. Traders said this level is likely to hold until markets get more details on the Irish rescue plan.

In the currency options market, euro sentiment stabilized for now. The one-month euro/dollar risk reversal, a barometer of currency sentiment, started to creep higher, suggesting investors near-term are starting to get less euro-bearish.

The euro's risk reversal still showed a "put" bias, but it has risen from extremely low levels. On Friday, puts traded higher -- a mid-market of -1.175 vols, with bids at -1.55 vols. On Thursday, bids on euro puts were at -1.60, down from -2.025 early this week, a roughly 2-1/2-month low.

"Overall, with the crisis in Ireland likely coming to a close, for now--(this) means the dollar may soften a bit versus the euro as investors consolidate their short positions," said Marc Chandler, global head of currency strategy, at Brown Brothers Harriman in New York.

Problems Associated with the Quantitative Easing Plan

There is a risk that the war of words between Bernanke and others about his $600 billion quantitative easing plan will get worse. Bernanke's plan is risky, but he believes strongly that the domestic economy will stall without it.

Many officials elsewhere are appalled by the plan because it has dropped the value of the dollar and are forcing cash away from banks and into investments both domestic and foreign. It's creating inflationary pressures in Asia, who depend on the United States to sop up their excess production. China has been forced to slow down bank lending and may boost interest rates. China is also facing substantial food inflation.

It's under domestic attack by Republicans and Republican-leaning economists who fear the plan will unleash inflationary pressures here eventually.

We may see this domestic conflict in the Fed minutes due Tuesday at 2 p.m. ET. At least one Fed governor, Kevin Warsh, who has worked on Wall Street, thinks the plan won't work, although he did vote for it.

Problems Associated with the Irish Rescue Plan

A very pressing question is how a rescue plan for Ireland is structured. Ireland's government bonds are under deep pressure because the government agreed in the financial crisis to back the losses of its big banks.

A plan to shore up the bonds may require deep spending cuts and corporate tax increases, which the Irish don't want to do. The Irish economy grew rapidly in the last 20 years because it offered companies generous tax incentives, including low corporate tax rates.

Economic News

A full week’s worth of data has been funneled into Tuesday and Wednesday. Third quarter GDP and existing home sales are reported Tuesday. Weekly jobless claims, durable goods, personal income, consumer sentiment, new home sales and the Fed minutes are reported Wednesday.

Economic Reports

Tuesday

Third-quarter gross domestic product, a second estimate, from the Commerce Department. The original estimate was 2%. Nomura Securities sees it revised up to 2.3%. IHS Global Insight, a big economic consulting firm, expects 2.2%.

Existing-home sales for October, from the National Association of Realtors. The consensus estimate is for an annualized sales rate of 4.48 million units. IHS Global Insight expects a 4.2-million-unit rate. Nomura sees a 4.6-million-unit rate. Look to see how large a share of purchases are foreclosures.

Wednesday

Durable-goods orders, from the Commerce Department. Expect a decent gain, 0.5% or better, fueled largely by aircraft orders.

Personal income spending and income for October, from the Commerce Department. There are hints that employers are boosting hours worked and even hiring here and there. So, most analysts expect a gain.

Initial jobless claims, from the Labor Department. This is the closest indicator that tells where the job market is. The past two weekly reports have been the seasonally adjusted claims rate at under 440,000. Another such report will be a decent signal that the recovery is picking up steam. Claims were at 504,000 in mid-August and well north of 600,000 a week through most of 2009.

New-home sales for October, from the Commerce Department. This will be a depressing number, with an annualized sales rate of around 320,000. That will be up slightly from September's 307,000-unit rate. But all of these rates are lows since data collection began in 1961. Until the foreclosures are sold off, don't expect much improvement.

Events of Importance

Significant Happenings

• The Financial Stability Oversight Council, created by the Dodd-Frank financial overhaul law, is scheduled to meet Tuesday. A group of House Democrats this week urged the council, chaired by Treasury Secretary Timothy Geithner, to conduct a new round of stress tests on mortgage lenders as the industry grapples with irregularities in loan documents. The panel, formed to watch over the $700 billion federal bank bailout, has said in a report the foreclosure document problems "may have concealed much deeper problems in the mortgage market that could potentially threaten financial stability."

• Tuesday is the deadline for people with property on the Gulf Coast to file with the Gulf Coast Claims Facility for an emergency advance payment on losses resulting from the massive oil spill that occurred after the Deepwater Horizon oil rig exploded and sunk in April, killing 11 people. Emergency advance payments will be deducted from final payments on claims. Those experiencing financial hardship because of damages caused by the spill can apply for money to cover six months of losses. The final claims deadline is Aug. 23, 2013.

COMPANY NEWS

This Week’s Earnings Expectations

This is an important week for earnings because retailers come front and center. Watch for the guidance because so many companies depend on the holiday season for their profits. A big issue: How much discounting do they expect to do to get business. The discounting will be a signal about the strength of the economy.

Here's a quick rundown on what reports are due:

Monday

Hewlett-Packard

After Monday's close, Hewlett-Packard is expected to report $1.27 a share in earnings, up from $1.14 a share, with revenue up 6.4% to $32.75 billion. Look for strength in its consulting business and servers.

Tuesday

Cracker Barrel (CBRL), Hormel Foods and Campbell Soup

Cracker Barrel (CBRL), due before Tuesday's open. The estimate is 91 cents a share, up 17% from a year ago. Revenue is expected to rise 3.3% to $600 million. The stock closed at $56.09 on Friday after hitting a 52-week high of $56.24.

Hormel Foods, due before Tuesday's open. Look for 79 cents a share, up slightly from a year ago. Revenue of $1.88 billion should be up 12% from a year ago. Its shares hit a 52-week high on Friday.

Campbell Soup, due before Tuesday's open. The company has already warned that results will be lower than a year ago. The stock has held up fairly well. It peaked at $36.66 in early November and is down only 5.5% since then, despite the warning.

Wednesday

Deere and Tiffany

Deere, due before Wednesday's open. The Street is expecting profits to jump from 23 cents to 94 cents a share, with revenue up 31.7% to $6.2 billion. Farm prices are high, and growers are expected to be in the mood to buy.

Tiffany, due before Wednesday's open. Look for a 12% earnings gain and a 9.2% revenue gain to $653.3 million. Tiffany's growth in the last two years has come from outside the United States. Look for comments on the American shoppers' willingness to spend.



INDICATORS AND MARKET CONDITIONS

Implications of Thanksgiving Week and Associated Returns

Introduction

Thanksgiving arrives this week. You can expect some pretty low volumes around the holiday, but what about returns? Below is some insight as to what could be expected from this shortened week!

Thanksgiving Week Since 2000

Below is a table showing what the Dow Jones Industrial Average did each day of Thanksgiving week for the last 10 years. The entire week has averaged an impressive 1.2% return. However, much of that can be credited to one year, 2008, when the Dow gained over 9%. Also, it may be worth noting that three of the last four Thanksgiving weeks have been negative.

It has been typical for Thanksgiving week to get off to a good start. Monday has been the best day of the holiday week, averaging a return of 0.64%. Tuesday looks to be a very quiet day, with only one time in the last 10 years showing a return in either direction of more than 1%. It's also the only day that averages a loss in the last 10 years.

mo5-112210



Thanksgiving Week Direction?

Below is another table showing Dow returns over the last 10 years. It shows the year-to-date return heading into Thanksgiving week, the return for Thanksgiving week, and finally what the Dow did for the rest of the year after Thanksgiving week. It's interesting that during the last five straight years, Thanksgiving week went countertrend to the direction the market was heading.

Furthermore, once Thanksgiving week is over, the market resumed its year-to-date direction. Since the market is up so far in 2010, if that tendency continues, we will see a pullback for the week of Thanksgiving, and then the market heading higher for the rest of the year.

mo6-112210



Below is a table showing more historical data of the tendency for Thanksgiving to go against the market's year-to-date trend. Since 1980, when the Dow was positive heading into Thanksgiving week, that week was positive just over half the time, averaging a return of 0.25%. In the eight years that the market was down before Thanksgiving week, the holiday week was positive 75% of the time, averaging an impressive gain of 2.18%.

mo7-112210



***Further evidence of market conditions can be seen in representations of charts below.

Tracking of SPY, DIA, IWM and QQQQ

Introduction

After spending the first two days of this week continuing the recent pullback, the markets managed to rebound and retrace most of their losses. In the end, they closed out the week at just about the same place where they began. This was a positive development, as the markets were able to flush out excess bullishness while also respecting technical support levels.

Overall, stocks need to pull back in order to have sustainable trends, and while we may still have more consolidation ahead of us, the recent pullback has been effective in curbing bullish sentiment readings in indicators like the AAII Investor Sentiment Survey. While some market indexes dropped further than others, they all found support near important levels.

S&P 500 SPDRS (NYSE:SPY) ETF

For example, the S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, found support near a recent consolidation area. SPY spent most of the past month trading in the $118-$120 level and while it sliced through its 20-day moving average, the larger range was able to halt its decline. This week's low near $118 is now an important level to monitor, as SPY will likely need more time to consolidate the recent pullback.

spy111910



The Powershares QQQ ETF (Nasdaq:QQQQ)

The Powershares QQQ ETF (Nasdaq:QQQQ) also slipped under its 20-day moving average, although it did respect its prior breakout area near $50-$51 after its recent weakness. This was an important level to hold as it confirmed the top of the prior base as support. After a sharp drop, the resulting bounce often stalls out before reaching new highs, so it is quite possible that QQQQ will come back for a retest of this area. Traders need to be cautious and continue to monitor this level.

qqqq111910



The Diamonds Trust, Series 1 (NYSE:DIA) ETF

The Diamonds Trust Series 1 (NYSE:DIA) ETF followed a similar pattern to QQQQ as it retraced toward its breakout area. Earlier this week, it appeared that DIA would fall under critical support near $110, but buyers did manage to step in and help DIA bounce higher. While it is likely that DIA will need more time to consolidate, holding the $110 level was a positive development. This would be the key level to monitor in the near future in case the markets resume their weakness.

dia111910



The iShares Russell 2000 Index (NYSE:IWM)

The iShares Russell 2000 Index (NYSE:IWM) also slipped under its 20-day moving average this week, but managed to find support near a prior consolidation. IWM has been showing some strength over the past couple of weeks, and it was able to close out the week on a high note. It is now firmly back above its 20-day moving average, making this week's low the critical level to monitor in the near future. This is also a key index to monitor overall, especially as we head into the year's final month. This is typically a strong period for small caps and the recent strength may be hinting at a rotation back into this group.

iwm111910



Implications

The lows formed earlier this week are now where traders should be focused. It would be unlikely for the markets to simply rally from this point to new highs as it often takes more time to consolidate both the preceding rally and the recent weakness. The likeliest scenario would be for a range-bound environment between the October highs and this week's lows as the markets digest some of the recent volatility. However, this is simply one scenario, and traders need to be on guard for a move in either direction. The benefit of a week like this is that we now have clear boundaries to monitor. With next week being a holiday week, traders can expect low volume and possibly more sideways action. This is likely to line up well with the idea of further consolidation between the recent highs and lows.





Apparel Stocks That Are Comfortable

Introduction

While the discussion of an economic recovery is still much debated, the stock market is technically still above its September breakout and the benefit of the doubt must still be given to the bulls. With this in mind, traders that focus on strong stocks in the appropriate sector can greatly improve their chances of success.

Several apparel stocks remain in a good position despite the recent weakness in the markets. The consumer discretionary stocks should do well as a group early in a bull market as consumers begin to feel more comfortable with the economy.

Ross Stores (Nasdaq:ROST)

Check out Ross Stores (Nasdaq:ROST): this stock broke out from a consolidation in October, and it refused to give up any ground during the recent market weakness. In fact, ROST is beginning to emerge from a bull flag pattern that could take it to much higher prices.

rost111810



Urban Outfitters (Nasdaq:URBN)

Another apparel stock that recently cleared a consolidation pattern is Urban Outfitters (Nasdaq:URBN). This stock was trading in a channel as it corrected a rally from its bear market lows in 2009. It recently broke out of this channel on strong volume and also cleared its last pivot high from September. This higher high may be a clear signal that a trend change is underway.

urbn111810



Lululemon Athletica (Nasdaq:LULU)

Lululemon Athletica (Nasdaq:LULU) is another apparel stock that may be clearing its base. This stock has been quite volatile recently, falling under its base in September before violently rebounding back to the top of its prior base. This move trapped a lot of short sellers as they were expecting a breakdown. LULU has begun to break above resistance near $47, but hasn’t been able to follow through. Traders should monitor this level to see if LULU can gain some traction.

lulu111810



Under Armour (NYSE:UA)

Under Armour (NYSE:UA) on the other hand, had no trouble clearing its recent consolidation. Looking back, UA cleared a larger base back in September before settling into a second consolidation in October. It was able to clear this consolidation in November, even as the markets were pulling back. It held above the breakout level near $47.50 and could be resuming its move higher from here.

ua111810



Conclusion

The apparel group will be an interesting sector to follow as we head into the holiday season. This group would be considered an early cycle sector, which would perform well in the early stages of a recovery. If the markets are indeed forming a longer term bottom, then this group should have support from institutions looking for a longer term investment. As with all stocks, traders should monitor recent support levels to look for a change in character, but for now these stocks appear to be showing accumulation.

Check Out "Strength In Drug Manufacturer's Stocks"



drug stock



Conclusion

Therefore, due to Thanksgiving, it's a short week for the market. But earnings are due from Hewlett-Packard, Deere and Tiffany which are important to assess market direction Also, look for key reports on the economy, personal income and housing.

Normally, you don't expect much to happen at Thanksgiving. Everyone on Wall Street is trying to get away for a long weekend. This results in volume falling, and the week ends with a short day.

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