Shopping season for traders?

  • Retail companies dominate this week’s earnings calendar
  • WMT initially retreated post-earnings, but rebounded yesterday
  • Recent retail sales data were strong

Retail earnings typically cluster toward the end of the earnings cycle, and that’s never more important than in the fourth quarter.

Walmart (WMT)—always a widely watched retail bellwether—kicked off the meatiest portion of the retail earnings run last week, which continues with Kohls (KSS), TJX (TJX), and Home Depot (HD) today, Target (TGT) and Lowe's (LOW) on Wednesday, and Gap (GPS), Nordstrom (JWN), Macy's (M), and Ross Stores (ROST) on Thursday.

By the time the week is over, traders should have a better picture of the retail industry’s temperature, and whether these stocks are likely to get a collective bump as we head into (okay, we’re already in it) the make-or-break holiday shopping season.

WMT beat earnings estimates and just missed revenues (its modus operandi for three of its past five earnings releases), but the company also upped its outlook amid strong online and grocery sales.1 Traders initially embraced the numbers last Thursday, opening the stock at a record high and pushing it up as much as 3.6% on the day (to $125.38) before apparently thinking better of it and sending shares 3.8% lower to a negative close:

Chart 1: Walmart (WMT), 10/25/19–11/18/19. Walmart (WMT) price chart. Looking toppy?

Source: Power E*TRADE

That seemingly bearish intraday reversal may have looked even more toppy to traders on Friday, as WMT followed through with another loss.  

Yesterday was a different story, though, as halfway through yesterday’s trading the stock had erased almost all of Friday’s sell-off.

The longer-term WMT chart below shows six other days similar to last Thursday—a big intraday rally to a multi-week high that reverses intraday to close near the bottom of the day’s range. Three of these occurred the first day after WMT released earnings (“E”), or one day later in the case of the August example:

Chart 2: Walmart (WMT), 12/11/18–11/18/19. Walmart (WMT) price chart. Previous spike highs.

Source: Power E*TRADE

Two takeaways from these examples:

1. Last week wasn’t the first time WMT initially surged on earnings, only to reverse dramatically intraday.

2. Only one of these days (February 19) was followed by anything resembling an extended decline (or, in this case, mostly sideways price action). The January, May, June, and September examples were all followed by upswings within two or three days.

Whether or not WMT’s 1%-plus rally yesterday was the beginning of another one of these rallies could be tied to the overall quality of the numbers (and outlooks) released this week by other high-profile retail names. A rising earnings tide, after all, can sometimes raise the industry or sector boat.

Positive results could support one of the persistent economic themes of the past several months—that the consumer continues to be a critical linchpin of the US economy. After a miss last month, for example, Friday’s Retail Sales report rebounded to top estimates.2

Many traders may be watching this week to see if the retail sector of the stock market can build on the momentum of retail sector of the economy.

Today’s numbers (all times ET): Housing Starts (8:30 a.m.).

Today’s earnings include: (WUBA), Aramark (ARMK), Kohls (KSS), JinkoSolar (JKS), TJX (TJX), Home Depot (HD), Urban Outfitters (URBN), Medtronic (MDT).


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1 Walmart Hits Record High After Blowout Q3 Earnings, Trump Praises 'Great Numbers'. 11/14/19.

2 Retail Sales. 11/15/19.

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