Reality Bites for Retail
Ugly January for same store sales...
"Self-evident" means you don't need me to help you distinguish between degrees of terrible. Distinguishing between degrees of "terrible" is a skill you need for decent economies with good and bad retailers. "Store X blamed the weather; look out below! Store Y loves the trend! Giddy-UP." Forget all of that this month. We're in a recession. We're in a bear market. January's same store sales results are miserable. Don't wait to be told any of that. Concede to reality and try to profit from it.
My field position is this: the long-side retail trade that worked two weeks ago is being viciously unwound now. Sic transit gloria. This morning's sales release (remember: "terrible") should complete the process of selling the stocks back down the mountain. Suck in the optimists with a rally; roll over and rinse out the weak hands. Rally, rinse, repeat. That's what bear markets do.
So, you can run through the monthly spreadsheet below and look for the diamonds in the rough economy but, from where I'm sitting, (as always, in flowing silk robes atop Mt. Judgement) you're wasting time.
Click to enlarge
Your diamond is Costco (COST); its champagne-colored and 0.5 carats. As diamonds go, it doesn't give you much to love. This recession just got started. Everybody gets hurt in recessions; outlying retailers will rejoin the misery next month. You gotta trade the group using your favorite names. Staying long your favorite retailers is a game for a different tape.
Trading the group means this morning should be spent making your list of stocks you want to own below where they closed last night. The stocks are coming down. The stocks are getting rinsed out. Yesterday's prices are gone, let's play this morning.
If you're long retail already, batten down the hatches. You're going to pay tuition at the School of Trading this morning. The lesson is: Take Gains in Bear Rallies. The bright side is when tuition is this high, you won't forget the lesson.
If you have cash waiting to be put to work, you're rooting for a tsunami of weakness. So far we've got misery from Macy's (M), Wal-Mart (WMT), Nordies (JWN). We've got good results from Costco. Let's just run with the idea that misery tide is rising and hope for lower prices to buy.
Here's the list I have for buys: Wal-Mart at $46.50. Macy's at $22. Target at $48. I'd buy Costco anywhere lower than last night's close.
With the exception of WalMart and Costco, I'm looking for 52-week lows. I'm looking for an old-fashioned retest in the retailers. That's what I want to buy. This isn't the Apocalypse. This isn't 1930. This is a recession. This is a bear market.
Hitch up your pants and trade accordingly.
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