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Retail Q & A: Target, Lowe's, Home Depot...


It's back-to-school and the consumer stands accused of being dead; if they are, the retailers will know it before the Fed does.


It's game-on in the retailers this week with a fist-full of names ready to report including Target (TGT), Dicks Sporting Goods (DKS) and most of the specialty crowd. The logical question regarding the space is, of course, "How can you possibly own, or even care about, the retail sector with what we've heard from Wal-Mart (WMT), Home Depot (HD), what the Fed is saying about Mortgage Fallout and every other freaking thing that's come out in the news in the last three weeks, all of which spells trouble for the consumer?!"

Or something to that effect.

Two answers:

1. The retailers trying to work turn-arounds in a tough environment are working as shorts (See: Wal-Mart, which doesn't seem to ever want to bounce) and good merchants being punished with the group are working as trading longs (See: Lowe's (LOW), which is in the same business as Home Depot); that action spells trading opportunity.

2. It's back-to-school and the consumer stands accused of being dead; if they are, the retailers will know it before the Fed does.

Is "this time different" in terms of the consumer finally rolling over? Is it "in" the retail stocks? We'll have near-term answers to both of those questions by this time Friday. From where I'm sitting, I'm inclined to think the selling in a name like Target is getting overdone... but I'm not actually trading it that way just yet.

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No positions in stocks mentioned.

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