The Russell 2000, an index of smaller cap stocks, has clearly entered bear market territory. But the S&P 500 and the NASDAQ Composite, the two indexes of mainstream stocks, have fallen to the double bottoms formed in late August/September. If they find support at those levels, seasonal patterns suggest these indexes could rally nicely as we get further into earnings season.
In looking for sectors to watch, I noticed RTH, the Market Vectors Retail ETF, has a pretty good track record over the next several months. Retail stocks have a history of coming out of the Q4 earnings gate strongly.
RTH has found previous support around the 72 level, and is retesting that support. If it holds, and the rest of the market starts showing a return of buyers, this sector could be a good place to find rebound trade candidates.
I looked up the top-10 holdings of RTH and went through the charts and seasonal patterns of each. The first six largest holdings, AMZN, HD, WMT, CVS, WBA, and COST, didn't stand out. I was looking for a chart setup that could be tradable if the overall markets at least stabilize, evidence of accumulation while the rest of the market is declining, and a seasonal pattern suggesting institutions regularly load up on the stock this time of year.
Number 7 on the list caught my attention. Lowe's Companies (LOW), the home improvement retailer, actually shows a little accumulation. Investor's Business Daily's Up/Down Volume Ratio, at 1.1, the On Balance Volume (OBV) indicator, and a look at volume patterns show some evidence of accumulation , while most other stocks are showing evidence of distribution.
And while many other stocks are breaking support levels, LOW rebounded strongly from the 70 level in mid-November, and yesterday's early-session selloff quickly attracted buyers, leaving the stock to close back at the 70 level. LOW will be interesting to watch to see if it holds, and begins to rebound from the 70 level.
Checking fundamentals, Lowe's Companies has a pretty decent track record of growth and earnings (an EPS Growth rate of 17%) over the past two years. Return on Equity (ROE) is a nice 25%.
The company pays a dividend, currently yielding 1.6%. However, the stock has a 5-year dividend growth rate of 20.7%. Lowe's has increased their dividend for 54 consecutive years (since the construction of the Berlin Wall and Alan B. Shepard's flight, the first US astronaut to enter space).
So LOW could be of interest to a short-term trader looking for a potential rebound trade, or a longer-term investor looking for a good DRIP (dividend reinvestment) holding. But first, the markets must show a better attitude. For that reason, I will not add LOW to the Seasonal Forecaster portfolio at this time, but I will be closely watching this stock.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link: www.markettamer.com/seasonal
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Gregg Harris is the Chief Technical Strategist at MarketTamer.com.
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