The Lipstick Indicator EL

Jan 27, 2009: 12:33 PM CST

Some have called Estee Lauder (EL) the “Lipstick Indicator” for a variety of reasons.  Let’s look at EL on a weekly basis and then view a recently released video explaining more about this ‘indicator’ from Adam Hewison of Market Club.

Estee Lauder EL Weekly:

Estee Lauder EL

From a technical standpoint, the first thing I wanted to highlight was the Relative Strength Line throughout 2008.  As the US Equity Market entered a confirmed bear market and fell through 2008, Estee Lauder held its own and outperformed the S&P 500 until October.  This behavior is exactly what you would expect to see from a “Consumer Staple” type company – no matter what the economy does, women will always wear lipstick and other beauty products, though it doesn’t have to be the expensive kind.  Some would argue they would wear them more to feel better in difficult economic times.

Consumer Staple stocks (Estee Lauder straddles the line between Consumer Staple and Consumer Discretionary in my opinion) often experience little volatility but hold firm in up markets and down markets.  This tendency was shaken dramatically in October as the price fell 50% into the worst of the economic downturn and decline in the broader stock market.

Price formed a bear flag into 2009 and has since fallen to test the November lows on the weekly chart.

I placed two red arrows at confirming locations to highlight the official reversal of the trend, as price first violated the rising trendline (blue) on the Relative Strength line at the same time price broke beneath the 20 and 50 week EMAs.  Shortly after, these averages crossed bearishly, officially signaling the end of the uptrend in the stock.

Adam Hewison released a brief 3 minute video that goes into more detail about how investors use Estee Lauder as an indicator about the economy (interesting piece) and how you might take advantage of learning about this tendency.  His video is entitled “The Lipstick Indicator” and here is a brief introduction to the video:

“Ladies are putting down the lipstick and picking up the necessities.  US consumer have been used to spending hundreds on self-gratifying purchases.  The things we once wanted are being put on the back burner to afford the things we really need.

I learned how dire times really are when Elizabeth Arden (RDEN) and Estee Lauder (EL) came out with their sales and earnings forecast last Friday.

Take a look at this video of Estee Lauder and see where we got short this stock using our “Trade Triangle” technology. What’s nice about this technology is that it can use previous market action to help you get in and ride the trend (to profit from news and earnings).”

Thank you as always to Adam and staff for sharing these videos with us.

Corey Rosenbloom
Afraid to Trade.com

4 Comments

4 Responses to “The Lipstick Indicator EL”

  1. Gawed Says:

    reading your post about staples behavior made me think of this McKinsey article about how different sectors have reacted in previous crisis. maybe you’ll find it interesting:
    http://bit.ly/useF

    I think they now offer free memberships, but if i’m wrong let me know and i can send you my copy.

  2. Corey Rosenbloom Says:

    Thanks for the link!

    Estee Lauder is sort of an interesting stock – women have to have lipstick (ok, not really, it’s not like food or water) but they don’t have to have expensive lipstick so they can cut back. However, they generally try to look better/feel better in down times so the effects counter each other out so it’s hard to parse out the pure analysis of spending trends. Still, it’s something interesting to consider.

  3. Gawed Says:

    there’s so many of those “must have/not really” products out there and i’m sure it keeps increasing don’t you think? i’m sure tobacco and alcohol are among those, as well as tennis shoes (IMO thats the guys lipstick) or even iphones LOL.

  4. Michelle Says:

    I found the lipsticks, glosses from http://www.coonobabe.com. to be high quality at very reasonable pricing. The USA made lipsticks/glosses are very good. Check it out. By the way,Coonobabe offers free shipping anywhere in the world. …Michelle 😉