Black Friday 2016 revenues beat 2015 results, underpinning newly resurgent retail sector sentiment just in time for the most critical four week period of the year. Online sales grew at a healthy pace while brick and mortar sales shrunk, continuing the multiyear exodus into e-commerce. Even so, the current rally wave has lifted both types of operations, as well as hybrids.
The American consumer is benefiting from stronger 2016 wage growth; however, speculation has driven the post-election rally rather than actual metrics, with pundits hypothesizing Trump policy impacts on economic growth and Fed policy in the next four years. The reality of a revolutionary political shift to the right could set a far different tone than these optimistic divinations.
Many broad line retailers, including big box stores Costco Wholesale Corp. (COST) and Wal-Mart Stores Inc. (WMT), continue to struggle despite the sector’s upward trajectory. Department stores, specialty shops and online portals hold the sweet spots, lifting to 2016 and all-time highs. Let’s look at three promising plays into the Xmas week, identifying price levels that may offer good value for position traders and market timers.
Kohl’s Corp. (KSS) has transformed from laggard into market leader in recent months, defying critics who expect the mall anchor to implode in coming years. It tested the 2007 high near 80 in March 2015 and rolled over in a vertical downtrend that relinquished more than 45-points into the May 2016 low. The subsequent recovery wave stalled at the 200-day EMA in August, giving way a 3-month consolidation pattern, followed by a November 10th breakout.
The rally ran out of gas at 57.27 a few sessions later, giving way to a trading range that could yield higher prices into 2017. The best entry will come on a pullback that tests but doesn’t fill the breakaway gap centered at 47.60, where the 50-day EMA should offer strong support. Breakout buyers can also focus attention at the top of the range, with a follow through rally having the power to reach the low to mid 60s.
Burlington Stores Inc. (BURL) went public in the mid-20s in 2013 and ground sideways into 2014 breakout that yielded a strong uptrend, lifting the stock to 61.94 in March 2015. A complex correction into 2016 settled in the upper 30s, ahead of a recovery wave that reached within three points of the prior high in March 2016. The stock settled at that level for three months and broke out, posting a series of new highs that continued into last week all-time high print at 91.67.
The stock has been pulling back in the last few sessions, building a consolidation or pullback pattern. Both scenarios work well for short-term trading strategies, either buying a breakout with the intention to exit at the first penetration into triple digits or letting a decline shake out weak hands and buying close to last week’s breakaway gap between 79 and 82.
Dick’s Sporting Goods Inc (DKS) ended a choppy uptrend at 60.33 in April 2015 and rolled over in a persistent decline that found support at a 4-year low in January 2016. The subsequent recovery wave caught fire in June, lifting the stock back to last year’s high on healthy volume. The rally ended in August, yielding a narrow consolidation pattern that’s still in force nearly four months later.
On Balance Volume (OBV) has surged to a new high while monthly and weekly relative strength cycles have flipped into buy cycles. A rally above 62 could set a major breakout into motion, with a healthy measured move target in the 90s. On the flip side, a decline through range support at 54 will negate this bullish scenario and raise odds for a much deeper slide.
The Bottom Line
The retail rally has floated all boats but the strongest stocks in the newly resurgent group should offer the most reliable swing trades through Xmas week and into year’s end.
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