LULU Favored by High End Retail
LULU is a high end retail company that has been working. However, beware of the high end!
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A Material shift in Consumer Sentiment seems to have begun, and if it is anything like the past the result could bring the high end of the market back don to reality and significantly change the otherwise sanguine environment that has existed. This is a hands on observation, a “Random Walk” if you will, and something that traditional economists miss, but there may be a material change soon. My observations over time tell me that obvious overshoots and undershoots happen from time to time, and we may be witnessing an overshoot right now.
Using these same ‘Random Walk’ indicators an undershoot in consumer sentiment occurred in the middle of 2009, a couple months after the market actually bottomed in March of 2009, and it suggested that the sentiment on the street was so poor then that buying opportunities existed. After comparing normalized demand levels to actual demand for investments at that that time we observed discrepancies as well, and undershoot again, and that offered additional confirmation. My proprietary work identifies where natural rates of demand are for investments in the US economy, and when we compare actual demand to normalized demand we can also see clear periods of overshoots and undershoots (https://members.stocktradersdaily.com/
Not unlike the consumer based overshoots that we are witness to now, demand and even equity based valuation ratios seem to be overshooting as well, but that is a conversation for another day. Today’
Although the low end of the market does not share that enthusiasm, and that divergence raises a host of additional concerns, the basis for projections using our Random Walk model is contrarian as it identifies overreactions, either positive or negative, and attempts to identify opportunity afterwards. This is part of a group of indicators, and although I expect that someday this will hiccup, this part of our analysis has never been wrong.
Using an only partly scientific approach, which is mostly hands on, I have determined that shortly after the Market peaked about a month ago the sentiment on the street also seems to be peaking. This slight lag is normal, it even happened in 2009 where sentiment actually bottomed in the middle of 2009, shortly after the March 2009 low.
Interestingly, though, the high end is not as ready to make the big purchases as their face-value sentiment may actually suggest. They are paying up for the basics, movie tickets, dry cleaning, specialty retail, and food, but they are not stepping up to the extravagant purchases, nor are they likely to do so. For example, Tiffany’s (NYSE-TIF (http://www.stocktradersdaily.com/
My point here is that the high end is very happy, very willing to buy the higher end goods and services, and the price points for those items is actually increasing, but when the limits are pushed to the ultra high end like TIF we have seen enough hesitation for us to believe that a shift in absolute sentiment is also already occurring. I expect the trickle down impact of consumer sentiment to start to impact even the higher end food and specialty retailers soon, but I do not expect much change on the low end. Those consumers have not seen a spike in sentiment at all, they are still struggling, and this tale of two worlds will not change their pace of participation very much in my opinion.