Retail - Naughty or Nice?

Most were waiting for good news from the holiday shopping following the Thanksgiving holiday, but the outcome was not impressive. Some would say it was better and some would say it was disappointing. The increase of 0.5% for Black Friday was not exactly earth shattering news. However, it could have been a disappointment. Hopes are now being pinned on Cyber Monday? If we step back from all the news and data, the chart of the Dow Jones US Retail Index shows how investors are thinking and reacting. The trend has moved lower over the last eight weeks and after challenging the October high we are now testing support of the 20 day moving average. The trendline support is just below at 320. Thus, one would be under the assumption there is opportunity for the sector to break higher. However, digging into the sector shows there is more of a separation effect taking place than a sector on the rise.

We are defining the winners and the losers. There are the Amazon's (NSDQ: AMZN) and there are the JC Penny's (NYSE: JCP), each defining a new direction. Amazon is winning the online sales and JC Penny's is losing the brick and mortar sales contest. Thus, I would be filtering through the sector and finding the winner's to play in the sector versus buying the whole sector. The all for one and one for all mindset has shifted gears since hitting the highs in October. There is plenty of easy to use software available to perform this surgery. You can scan based on fundamental data, technical data or both.

I discuss the importance of having a strategy constantly, this is a case where defining how to play a sector is more important than buying the whole sector. Take the time to filter through and define how and what to play in the retail sector looking forward. Remember Entry, Exit and Target on every position is a priority.