WaveStrength Market Trends for November 20, 2006
Retail's Leading Indicator
by Ann Sosnowski
Retail’s leading indicator isn’t same-store sales over the last six months, recent earnings, or forward-looking statements.
It’s Black Friday, the day after Thanksgiving where masses of Americans flock to major department stores at 2 a.m., hoping to hit some killer sales and win gifts for themselves on in-store giveaways.
We’ve already seen the video console wars heat up, as both Sony’s PlayStation 3 and Nintendo’s Wii are out “on the shelves.” (Figuratively, but not literally, at least not for those who didn’t sleep out three days in advance in Best Buy’s parking lot.)
It’s going to be even crazier this year… and no matter how many years I say that I’m just not going near a retail store on Black Friday, I can’t help venturing out for a few hours just to be an observer of the madness. According to recent press releases, toy stores like KB Toys and Toys “R” Us are planning to open at 12:01 a.m. in Southern California to get a head start in sales!
According to recent statistics, an individual consumer spends about $800–900 during the holiday season on gifts, gift wrapping, postage, and holiday food.
And while oil prices are low for this time of year and the stock market is moving at a rapid rising pace, retail sales are only going to grow about as much as they did during the holiday season last year.
Retail sales for same stores rose 4.1% from November 2005 to January 2006 and are expected to only be 3.5% this year during the same period.
Total retail sales, including those stores not yet open for a year, are expected to increase at a 5.4% clip, compared with 6% last year.
Companies like Wal-Mart Stores Inc. (WMT:NYSE) are already working on gaining holiday sales, as the super retailer has launched its lowest, most competitive pricing strategy on toys, electronics, and home appliances ever in the history of the company.
Regardless of lower consumer goods pricing, this doesn’t discount the fact that a lull in retail investing within the stock market is underway. We won’t hear sound evidence of a match, or even an increase in holiday retail sales this season until all is said and done late January.
And Black Friday will only be an “indicator” of what could come. Whether it’s good or bad doesn’t matter… what does matter is that those same consumers keep spending between November 25 and January 1.
What I can see in the crystal ball is the following mess:
The daily Retail Service HOLDRs (RTH:AMEX) chart is rounding out at another top near highs of $100, a price that it normally corrects from during the holiday season. We could see $96 on this index in the next three weeks or less.
Wal-Mart Stores Inc. (WMT:NYSE) was severely overbought a few days ago, and looks like it will run flat above the 200-day Moving Average. In fact, WMT usually runs flat or corrects cyclically between December and the beginning of January.
Target Corp. (TGT:NYSE) has hit a high of $60 per share and is unable to break above it. Money Flow is flat, and should turn negative pretty soon, rolling TGT down to $52 by mid-December.
Even great apparel stores like Gap Inc. (GPS:NYSE) and Kohl’s Inc. (KSS:NYSE) (which will get most of my patronage this holiday season) are rounding out and looking to drop from recent highs.
Again, this is not the best time to be holding retail in your portfolio. You’re going to want to put your money on these companies in early 2007 when they’ve hit a cyclical low.
You’d be better off, and much more “profitable,” purchasing yourself a gift when you go out holiday shopping than buying shares of any of these companies right now.
You’d even be better off investing in some debt collection or credit card companies, as most Americans are using their plastic more than paper this holiday season anyway.