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Stick With Winners in Retail


Aeropostale, Apple, and Ali all throw a good punch.


Greetings from the midtown headquarters of Minyanville. Though I work for the company, I'm here so seldom that the username on the computer I'm writing on this very second is "user." Come to think of it, they probably were referring specifically to me, based on something someone who doesn't know me put on the Internet. It's a strange world; an observation which is both correct and entirely non-tradable.

Here's what I'm mulling when I tamp down the paranoia and ignore non-financial thoughts:

  • Retail sales come out this Thursday and the world, or at least the Wall Street Journal, is all a twitter over it. Estimates for September average somewhere between -1% and 1%. Given a "late" Labor Day and the fact that the world started imploding last September, I'm thinking the estimates are too low. If you're looking for a quick trade, I'd stick with the companies already on a roll (Gap (GPS), Aeropostale (ARO), and perhaps a little Best Buy (BBY) as a longer shot).

  • To be clear, this is strictly a trading idea, not an investment thesis. If you're going to play, buy a pullback sometime before Wednesday at 4 p.m. and sell any pop you may get when the headline is "Retailers Roaring Back: SSS Better Than Sandbagged Estimates."

  • Speaking of sticking with winners, as I've said before, the hardest thing about the market this year has been staying long the winners you bought in the Spring. And, yes, I'm talking about me. I bought Apple (AAPL), Goldman Sachs (GS), Bank of America (BAC), and General Electric (GE) in March. By early June I was out of them all. The half-full part of the trading glass of water is that I booked good trades. The half-empty part is that "doing nothing" would have done so much better that I throw up a little bit in my mouth every time I see quotes for any of those stocks. The lesson: The trend isn't actually your friend but a dangerous beast that must be respected. The market as a whole has yet to break the purple crayon uptrend. Until it does, shorting baskets of stocks is simply expensive hubris.

  • Though Microsoft (MSFT) quickly poured water on the rumors of it buying Electronic Arts (ERTS), I can't think of a more synergistic pairing. Two companies that once dominated their industries and now live off the residuals of past glories. Madden 10, anyone? It's the wrong time in the gaming cycle to buy any of the companies involved. Save your money and buy the games, instead. Over the weekend I visited a very crowded Toys R Us (private) and bought Toddo Electronic Arts' latest boxing game. Ali vs. Tyson with both in their primes? I could, and did, play such a game all night. But I know about two other boxing fanboys who'd play it with me and not one single person who bought the latest Madden. Ignore the gamemakers until they start hyping new consoles. Anyone who wants an old Xbox, Wii or PS3 has one already and is probably sick of it. Of such cyclical downturns are stock collapses born.
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No positions in stocks mentioned.

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