Discount retail shows up doubters

It wasn’t too long ago that brick-and-mortar retail—those hopelessly archaic businesses foolish enough to have physical storefronts—had been left for dead. If you read some of the financial news coverage, it almost seemed as if these companies might as well have immediately sold off their assets, leveled their buildings, and apologized for wasting everyone’s precious time and money.

Around a year later, though, the landscape appears very different. Beyond a doubt there has been pain and dislocation in the retail sector, including some venerable institutions (think Sears and JC Penney) declining to penny-stock status and on a seemingly unalterable path to extinction in the face of all things Amazon. But others, even some department stores (Macy’s, Dillards), have staged impressive rebounds in recent months, and discount retailers have fared especially well.

TJX Companies (TJX), the corporate parent of discount retailer T.J. Maxx, has definitely bucked the retail-negative meme, having gained around 25% on the year and 40% since last November. The daily chart below shows that the stock handled the February market correction better than many, and a big chunk of the its YTD gains came courtesy of a 15.4%, May 7–June 7 rally.

TJX Companies (TJX), 2/13/18 – 7/10/18. TJX (TJX) daily price chart. Tight trading range near highs

Source: OptionsHouse

Since then, volatility in the stock has dropped to almost nothing as prices have coiled in a tight range between $96.82 and $93.62, leaving traders to ponder whether the inevitable breakout will happen sooner or later, and whether it will be up or down, and whether it will have legs.

But with the next company-specific news catalyst—Q2 earnings—scheduled for release in mid-August, the trigger for TJX’s next move (assuming there is one before then) may have to come from another source. 

A couple of pieces of recent news may be worth considering:

●Last week data revealed top mutual funds were accumulating positions in retailers, including TJX.1

●Volume in TJX call options outpaced volume in puts by around 15:1 yesterday, as shown in the LiveAction scan below. (It’s just one day’s trading, but it’s interesting, nonetheless, given the absence of company headlines.)

LiveAction scan, high call/put ratio, 7/16/18. Calls outpace puts.

Source: OptionsHouse

The stock also got an increased target price ($100) from Credit Suisse in June.2 Finally as mentioned in “Hot tech leads stealth upswing,” small-cap, mid-cap, and tech indexes have all set record highs in the past couple of weeks, and the large-cap S&P 500 (SPX) is as close as it’s been to its record high since the beginning of February. If broad-market momentum sustains to the upside in the coming days, it could make it harder for stocks that have been in holding patterns near highs, like TJX, to not participate.

Finally, veteran traders will be aware of the potential for a head fake—a possibly sharp move out of the range that is quickly reversed and gives way to a trend in the opposite direction (a “bear trap” or “bull trap,” depending on who’s getting trapped by the reversal).

Markets can be a little nasty that way. You can’t take it personally.

Market Mover Update: After an up close on Friday, August WTI crude oil futures (CLQ8) resumed their downturn, falling more than 4% intraday to below $68/barrel. Meanwhile, gold futures continue to face selling pressure: After briefly trading to a one-year low last Friday, yesterday August gold (GCQ8) reversed an intraday rally to close down on the day and threaten Friday’s low of $1236.20/ounce.

After spiking lower on Friday after releasing earnings, Wells Fargo (WFC) rallied nearly 3% yesterday, and got an “outperform” rating from investment bank KBW.3


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1 Investor’s Business Daily. Which Stocks Are The Best Mutual Funds Buying? Here's The List. 7/11/18.

2 StreetInsider. The TJX Companies (TJX) PT Raised to $100 at Credit Suisse. 6/22/18.

3 Wells Fargo Got Some Good News. 7/16/18.