By Victor Reklaitis, MarketWatch
Today’s silver lining: It may be a bear market, but it’s not yet “nowhere-to-hide” time.
That’s the suggestion from Dana Lyons of J. Lyons Fund Management, who is among those finding pockets of strength even as the Dow /zigman2/quotes/210598065/realtime DJIA +0.13% wallows 10% off its peak after a meager gain yesterday.
A consumer staples ETF is showing strength, Lyons notes in a blog post that offers the chart below. He says “as long as something is still displaying positive relative strength, it is a good omen for the immediate-term stock market prospects.”
“It is really only during the teeth of a bear market — when there is no place to hide, everything is getting smashed and correlations go to 1.0 — that relative strength loses any and all utility,” Lyons adds.
Michael Kahn at Barron’s also sees a glimmer of hope, except that he’s focused on the retail sector rather than consumer staples. He writes that retail “now shows signs of a revival,” and some retailers “have undeniable upside trend breaks.” Those include Gap /zigman2/quotes/206554267/composite GPS +3.12% , which reports earnings after the close today. More from Kahn in our chart of the day.
Just as saying it’s not yet “nowhere-to-hide” time is faint praise, our call of the day has the feel of a backhanded compliment. It’s provided by Citi’s global equity strategists, who have upgraded U.S. stocks /zigman2/quotes/210599714/realtime SPX +0.40% to neutral, or “not bad,” to put it in plain English. That’s up from their prior rating of underweight, which you could think of as “ugly — stay away.”
Key market gauges
Dow and S&P futures point to a step up at the open. Oil /zigman2/quotes/209724538/delayed CLJ26 +0.66% is trading lower, and the Shanghai Composite /zigman2/quotes/210598127/delayed CN:SHCOMP -0.43% ended down 6.4%, with analysts in China blaming worries about market liquidity and other factors. But Japan’s Nikkei /zigman2/quotes/210597971/delayed JP:NIK -1.11% managed to close higher, and Europe /zigman2/quotes/210599654/delayed XX:SXXP -0.42% is up. Gold is lower, and a key dollar index /zigman2/quotes/210598269/delayed DXY -0.02% is little changed.
In a surprise move, there has been a “retail renaissance,” writes Barron’s Kahn in his latest Getting Technical piece : A key retail ETF /zigman2/quotes/206947004/composite XRT +0.49% is holding up after breaking out from a double-bottom pattern .
It wasn’t a “robust breakout,” but the ETF has zipped above a declining trendline, he says, noting “there are more than a few retailers showing positive signs.”
Beyond Gap, which has scored a small breakout, Kahn notes Macy’s /zigman2/quotes/201854387/composite M +2.21% “just punched through resistance on heavy volume,” and Wal-Mart /zigman2/quotes/207374728/composite WMT +0.44% shook off last week’s earnings miss.
To be sure, Kahn says he’s generally downbeat on the market, and the banking sector’s /zigman2/quotes/210598427/realtime BKX +0.52% ugly chart confirms his “fairly bearish outlook.”
Plus, there are retailers showing awful action, with Restoration Hardware /zigman2/quotes/200286355/composite RH +0.49% late yesterday issuing the “Magna Carta of whiny, red-flag, specialty retail death trap warnings,” as Jeff Macke puts it over at the iBankCoin blog .
The Fed is viewed as turning less aggressive than expected with its interest-rate hikes this year, and the almighty dollar is looking like less of a headwind. Those developments have prompted Citi’s global equity strategy team to warm up a bit to U.S. stocks, upgrading them to neutral.
“Fed hikes and USD strength should prove less of a drag on the U.S. market in 2016,” the team writes in a note dated Wednesday.
Citi’s Robert Buckland and his colleagues also have become more upbeat about emerging-market stocks /zigman2/quotes/201454250/composite EEM -0.44% , as shown in the table above. They’ve upgraded EM equities to overweight, or buy, with a preference for Asian plays over CEEMEA (Central and Eastern Europe, the Middle East and Africa).