US Stock Market Wrap-Up: The Truth Behind Retail Sales

The big three begged for money in DC today (Thursday) and it did not have much of an affect on stocks until the last hour of trading. The market was back its old tricks and sold off during the last 60 minutes of trading, turning a basically flat day into a triple-digit loss for the Dow (^DJI). The index closed with a loss of 215 points or 2.5%. The S&P 500 (^GSPC) fell 25 points or 2.9% and the NASDAQ (^IXIC) tumbled 46 points or 3.1%. Oil fell to a 4-year low, down 6% and gold lost 1%.

Heading into today the market was up 7 of the last 8 sessions and it was not a major surprise to see some light volume selling as profits were banked. The good news is that the economic numbers continued to disappoint and stocks did not sell-off on the news. (More on retail sales below.) Technically the market continues to consolidate in a volatile fashion as I had suspected. This is not necessarily a bad thing and the longer the market continues to move sideways, the better the chances that this is the bottoming process.

Just a few bullish notes to think about. According to the WSJ today, the amount of money in money markets increased once again last week and is now at a new record of over $3.5 trillion. Another bullish factor is the 30-year mortgage rate down to 5.5% and possibly heading much lower in the coming weeks. Keep in mind that stocks discount the future and will begin to move higher months before the news begins to improve.

BREAKING DOWN RETAIL SALES

The Black Friday numbers are out and up slightly from last year, Cyber Monday was a big success for online retailers according to comScore, which reported a 15% jump from last year, and November same-store sales were released today. Some highlights and lowlights of November: Target (TGT) down 10.4%, Nordstrom (JWN) down 15.9%, Macy’s (M) down 13.3%, BJ’s Wholesale (BJ) up 6.2%, Wal-Mart (WMT) up 3.4%, Buckle (BKE) up 15%, Abercrombie & Fitch (ANF) down 28%, and Hot Topic (HOTT) up 6.5%. One report showed November’s retail sales to be the worst in decades.

After seeing the dismal numbers any intelligent individual would assume there would be few bright spots as far as stock performance for the retailers today. Yet that could not be further from the truth. With an hour left in trading the S&P Retail Index (RLX) was up 4.1%, not far from the high of the day. At the same time the Dow was down 83 points. Some of the big movers to the upside included Nordstrom +19%, Collective Brands (PSS) +31%, Buckle +19%, JC Penney (JCP) +15%, Macy’s +10%, Best Buy (BBY) +10%, and Tiffany (TIF) +14%.

How is this possible? As I have saying for days, the market has priced in the horrible economic news and therefore when it hits the wires it is the old sell into the rumor and buy the news. This is the exact opposite of what occurs near the top of a bull market when investors sell stocks after reporting good news that was already baked into the underlying price. Other facts to consider include that the majority of November saw nobody at the stores. I would receive an email a week from the gentleman I work with at Nordstrom offering me discounts on suits. This was the first time it had happened as the retailer was willing to do just about anything to get customers through the door. I believe there is the “pent up” consumer that let loose after Thanksgiving and could be the savior for retail. If the masses are anything like what I saw in Manhattan on Black Friday, Americans love deals and are more than willing to spend the money to get a deal.

The numbers show that the consumer is far from dead, they were merely hibernating the last few months. The big question that retails are thinking about has to do with if the consumer will continue to spend into the Christmas holiday or was it a once and done phenomenon over the greatly discounted offers? Unfortunately I believe retailers will experience a slowdown for a week or two as consumers bet on more discounts coming their way. But in the end, if sales are even close to last year (right now they are better than last year), I have to be happy and so should the investors because the sell-off in retail stocks has priced in much worse than flat sales over the holidays.

Specifically the ETF to watch is the HOLDRS Retail ETF (RTH), which ran into stiff resistance today at the 50-day moving average at $75. A close above $75 would be a significant breakout and could send the ETF to retest the old support that is now resistance at $85. Though a failure to break through $75 could send the ETF down about 10% to support at $68.

BUY AND HOLD STRATEGY CHART - REVISITED

I had a request for the long-term chart of the Dow once again so here it is below.

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