Retail stock bullseye
When the December retail sales number was released on February 14, it was so far off target (-1.2% vs. a +0.1% estimate, the biggest monthly drop since 2009) that some analysts voiced skepticism about the data, and lots of investors and traders hoped they were right.
The next retail sales report is teed up for Monday, which may help clarify whether last month’s number was an aberration, an error, or a canary in the economic coalmine.
In the interim, we’ve already had a few big retail earnings releases, including Walmart (WMT) on February 19 (beat headline earnings and revenue numbers)1 and Macy’s (M) on February 26 (beat headline numbers but softened its outlook for 2019).2 As of yesterday, Walmart had pulled back to around $98 after popping above $104 on its report, while Macy’s was still in the vicinity of its 52-week lows. Like Macy’s, Best Buy (BBY) on February 27 topped its headline numbers and offered weak forward guidance, but unlike M, BBY jumped around 12% after its report before pulling back the past few days.
Most recently, both Target (TGT) and Kohl’s (KSS) released their numbers over the past couple of days, and both companies beat their numbers, showed strong holiday sales, and offered strong outlooks for 2019.3 All in all, it’s been a solid streak of data. (Perhaps the big post-earnings jumps in some retail stocks got a little extra “surprise” juice because the Street was expecting weaker numbers in the aftermath of the January retail sales number?)
Source: Power E*TRADE
The above chart of TGT shows the stock jumped around 4% on Tuesday, then climbed another 1.2% yesterday (to $76.90). Many chart-based traders likely noticed that yesterday’s rally peaked around the top of the November 19-20 down gap (which followed the company’s previous earnings report, by the way). Although there’s an old market saying, “gaps were meant to be filled”—meaning, price will return to the level of a gap before reversing—this is a saying, not a law. Some gaps get filled, others don’t.
Nonetheless, it’s wise to remember that many traders treat gaps as potential technical targets—price levels that, like prominent past highs or lows, may act as support or resistance, at least in the short term. Some are likely to see TGT filling its gap yesterday as a potential short-term bearish signal.
Traders will get another piece of the puzzle before the opening bell rings on Monday.
Also, options traders were zeroing in on Target yesterday: TGT options popped up on Power E*TRADE LiveAction scans for high number of trades and highest net premium levels. Depending on their time horizons, both stock and options traders may be looking at a couple of possible scenarios. The recent solid numbers recently posted by high-profile retail names may ultimately point in a bullish direction for Target and others, but TGT’s conspicuous gap fill—along with the post-earnings pullbacks in WMT and BBY—may tempt some traders to take profits on longs or initiate near-term short plays.
Tomorrow’s jobs number has the potential to move the broad market out of its current consolidation, one way or the other. Retail stocks aren’t going to ignore its implications. But before the opening bell rings on Monday, traders will have received another piece of the puzzle.
Monthly retail sales…Monday, 8:30 a.m. ET.
Today’s numbers: Productivity and Costs (8:30 a.m.), EIA Natural Gas Report, 10:30 (a.m.), Consumer Credit (3 p.m.).
Today’s earnings include: Burlington Stores (BURL), H&R Block (HRB), Intl Game Tech (IGT), Kroger (KR), Costco (COST), Marvell (MRVL), United Natural Foods (UNFI).
1 Arkansas Democrat Gazette. Walmart surpasses estimates for its 4Q; e-commerce side delivers 43% rise. 2/20/19.
2 StreetInsider.com. Macy's (M) Tops Q4 EPS by 20c, Offers Guidance. 2/27/19.
3 The Wall Street Journal. Target and Kohl’s Gain as Rivals Shrink. 3/5/19.