Sunday, September 23, 2007

A Lump of Coal this Christmas? A look at Retailers

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I decided to look this weekend at some of the major retailer names now that we've had a few days to digest this Fed cut. I am looking at these names strictly from a technical perspective. I remain bearish on the middle class US consumer, deprived of his/her ATM card (i.e. house equity), as housing prices in general fall and many new found homeowners (from 2005 onward) will find themselves upside down on their 0% down homes - along with the inflation the government tells us is nearly nonexistent (but Kroger and Albertson's refuses to acknowledge this fact when I try to explain why my bill should be at least 9% lower).

With the nearly nonexistent inflation also eating into restaurant's profit margins, I am pretty bearish on that group too; but I will focus on the retail plays today.

In general, stocks trading below both their 50 day and 200 day moving averages indicate severe weakness from a technical perspective. (especially when the 50 day average is below the 200 day). Stocks that are trading in between the 50 and 200 day moving averages are somewhat neutral; you want to see a stock break out one way or the other so it is sort of limbo land when the stock is in between. Stocks trading above both average, and especially when the 50 day is above the 200 day are usually in good shape technically.

At about 2:16 PM last Tuesday, a lot of short covering happened and formerly depressed retail stocks spiked; many bumping up and hitting their 50 day moving average (from below) - which serves as technical resistance. A few stocks shot through these levels, but many stalled there. Now a few days do not make a trend, but thus far, despite a solid Wed-Fri, many of these stocks faltered. This would indicate they would make some nice short plays here - so while I cannot take advantage of this trend in the fake fund I run, it might be something for the more avid trader to look over. Also by looking at what stocks are bucking the trend we can see where the real strength is in retail...

I will categorize some of the larger mainstream retail stocks into 3 buckets - those that are below both trend lines, those stuck in between the 50 and 200 day moving averages, and those above both trend lines. In this last category I will only include stocks that actually spiked off the Fed's decision and then fell back; this leaves out comatose stocks like Chico's (CHS). I also excluded drug stores/grocers which should be somewhat economically insensitive - tried to focus more on discretionary income. I also did not include 'retail' stocks that are a product, instead of a location i.e. Crocs (CROX) or Under Armour (UA)

The Good (above both trend lines)
  • Nordstrom (JWN)
  • Abercrombie & Fitch (ANF)
  • Zumiez (ZUMZ)
  • Target (TGT)
  • Costco (COST)
  • Dollar Tree Stores (DLTR)
  • Big Lots (BIG)
  • The TJX Companies (TJX)
  • Gamestop (GME)
  • Tiffany (TIF)
  • Blue Nile (NILE)
  • Amazon.com (AMZN)
  • Dicks Sporting Goods (DKS)
  • Cabela's (CAB)
The Neutral (somewhere between the trend lines)
  • American Eagle Outfitters (AEO)
  • Guess (GES)
  • J Crew Group (JCG)
  • Ann Taylor (ANN)
  • Best Buy (BBY)
  • Zale Corp (ZLC)
The Ugly (bounced post Fed but still below both trend lines)
  • The Limited (LTD)
  • Jones Apparel Group (JNY)
  • DSW (DSW)
  • Gymboree (GYMB)
  • Walmart (WMT)
  • Family Dollar Stores (FDO)
  • Home Depot (HD)
  • Kohl's (KSS)
  • JC Penney (JCP)
  • Macys (M)
  • Saks (SKS)
  • Staples (SPLS)
  • Barnes & Noble (BKS)
  • Circuit City (CC)
  • Bed Bath & Beyond (BBBY)
  • Williams Sonoma (WSM)
** The Barry Bonds Club (I am going to asterisk these names as they were too close to call in between The Good and The Neutral - stocks that had jumped up above their 50 day moving averages but now pulled back to fall right at or just below their 50 day - could break either way)
  • Men's Wearhouse (MW)
  • BJs Wholesale Club (BJ)
  • Lowe's Companies (LOW)
  • PetsMart (PETM)
SA/SS

Long Crocs and Under Armour in fund; no personal positions

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