This morning we received the monthly sales data from the US Government. The headline was that retail sales were up 0.3% where the expectations were for a negative 0.3%. The media says that retails are better than expected and is making a big deal about the surprise upside to the top line number we received this morning. There were some this morning that attempted to argue that the economy is strong and that the data we received shows that the "consumer shows great ability to bounce back". For those that know how we operate here we are NOT impressed with snapshots of data, we want to see the trend.

So lets take a look… the chart below is what the media is getting excited about. It is the top line (headline) retail sales data. The chart has been updated to reflect this mornings new data. This is a 2 year chart of top line retail sales data, kind of all over the map and difficult to determine any meaningful trend. The media is making a big deal that today’s data was better than expected, and what they are excited about is the difference between the two red arrows (last month and this month).

The purpose of showing this chart is to highlight that it is difficult to see any long term trend. 

(Retail sales data, raw data as provided by US Census Dept, chart source: Economy.com… edited by rebeltraders.net)

Now lets look deep inside the retail sales data, the data that no one seems to ever talk about in the media. The next chart is retail sales growth as measured in year over year net changes. Now trends become clearly visible.

This 20 year chart shows that the long term trend has been down for a long period of time. Technical analysis is not just for stock charts, it can be applied to many forms of data, especially when the data pertains to the actions of people. Just as in the stock charts we have certain patterns that we use to gauge the most likely path of prices. In this case we can use those same trend lines and patterns to provide an in depth view of this data and give us clues to the outcome.

On the chart below I have identified a very classic "bear flag" pattern which in price forecasting tells us that the probability of further declines is likely. I have indicated with a red arrow where retail spending is likely to go.

(Retail sales data, year over year, chart source: Economy.com… edited by rebeltraders.net)

The headline chart may be exciting for the media, but the long term trend chart is what we want to see.