Trading volume will continue to lighten over the next two days as traders turn their minds towards turkey on the table and deals in the stores. Along the lines of the last statement, there is some serious strength building in the retail sector without the help of Amazon.com, Inc. (NASDAQ:AMZN) shares. This quarter’s earnings reports have been kind to brick-and-mortar retailers, improving the likelihood of a Santa Clause Rally that could take the S&P 500 to highs for the rest of the year.
With that last statement, today’s big stock charts focus on the retail side of things with Shopify Inc (NYSE:SHOP), J C Penney Company Inc (NYSE:JCP) and the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), since we’re focusing also on the market’s rally potential.
Shopify Inc (SHOP)
After beating earnings expectations on Nov. 2, Shopify shares saw a sell the news reaction from the Street that took shares to their 200-day moving average. Since that technical test, SHOP shares have rallied more than 18 percent to their current level and have more in the tank.
Shares of Shopify were shunned by the Street ahead of the report; despite having rallied significantly since June, the Street wanted nothing to do with it. This, is why we saw the sell the news reaction to a good report, but it is also why we’re going to see SHOP stock shoot above $50.
Shopify’s successful 200-day test will embolden the technical traders to begin believing in the strong trend. With the last three day’s move, SHOP stock is in place to break above its top Bollinger band today, a move that will accelerate upside potential.
In addition, Shopify’s 50-day moving average is starting to move higher again, a technical development that will add even more bullish fuel to its tank.
For now, traders should watch the break above $46 as a sign that SHOP is ready to make another 5% to 10% run and take more leadership among the retailers into the end of the year.
J C Penney Company Inc (JCP)
It feels like each year JCPenney makes a fool out of the bulls by pulling off a great couple of quarters at the end of the year. The last two months have been hard for the JCP bulls, but the stock is starting to follow a familiar pattern as it charges up for an end of year rally.
Last week, JCPenney stock took over its 50- and 200-day moving averages on heavy volume, indicating that the traders were entering the shares again.
Why not? This zero went to hero each of the last few years as the market figured out that they really did know how to control inventory and get the right things on the shelf for Back-to-School or the Holiday shopping season.
The sudden jump in JCP shares have them rated highly in the overbought readings, but this metric will soothe itself quickly as the stock is consolidating while the bulls think of the next move. Meanwhile, the momentum in JCPenney shares is building because the stock hasn’t retraced the strong rally.
Bulls should feel comfortable with JCP shares as a buy here and nervous if we cross back below $9. Bears will cringe on a break above $9.50 and likely help to drive the JCPenney price higher as they turn from sellers to buyers. The charts favor a $12 value for JCP stock.
SPDR S&P 500 ETF Trust (SPY)
The post-election rally continues and it continues to surprise … but should it?
Historically, markets tend to rally after the results of an election, even if it didn’t go as the pollsters say. This is because the uncertainty is out of the way and the market can then focus on the actual valuation of the market under the new administration.
So far, that valuation has been bullish as we’ve seen the S&P 500 throw in a 3% rally with little volatility. Now, SPY shares are posting up on the $220-level, equivalent to the $2,200 that may provide resistance for the index it serves to proxy, the S&P 500.
Historically, round numbers are natural resistance and support levels for indices. The more the zeros the heavier the resistance or support. In this case, the S&P 500 hits this round number with its RSI starting to breach into overbought signals. This, combined with the round number may help bring the index down to a more value buy in the near future.
Of course, there’s this …
Historically, the S&P 500 performs well during the Thanksgiving Holiday shortened week. The chart below displays the disparity between the performance of this week against that average weekly performance for the S&P 500 on any week of the year since 1990.
So, back to the SPY chart: The rally we’ve seen mirrors that which happened in July 2016 (circled) and is likely to follow the same course as we should expect a consolidation after this week that will lead to a buying opportunity.
SPY traders will like the breach of $220 as a new high, but they should expect to be able to trade shares cheaper in the next two weeks. From there, expect seasonality and Santa Clause to do the rest of the work to have the SPY shares closing out the year on a strong note.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.