Market Trends/ Trading Tactics

Just as we suspected… consumers didn't do retailers too much good this holiday season. 

As we kick off the second trading day of 2007, the retail sector is once again in focus. But unlike yesterday, when Wal-Mart Stores Inc. (WMT:NYSE) infused Wall Street with positive news, today's results are less than stellar as Gap Inc. (GPS:NYSE), Federated Department Stores (FD:NYSE), and Limited Brands (LTD:NYSE) all reignited concerns about a slowing economy. 

Wal-Mart Stores Inc. (WMT:NYSE) increased sales by an extremely modest 1.3%. 

Gap Inc. (GPS:NYSE) missed by the largest margin (what's new?) as sales dropped 8% in December - much worse then the expected 5% drop. The operator of Banana Republic, Old Navy and Gap also cut its profit forecast for the year. Ouch. 

Target Corp. (TGT:NYSE) was the darling, posting sales increases up 4.1%.

While department stores showed modest growth across the board, specialty retailers were inherently weak: -- AnnTaylor Stores Corp. (ANN:NYSE), Chico's FAS Inc. (CHS:NYSE), bebe Stores Inc. (BEBE:NASDAQ) and Cache Inc. (CACH:NASDAQ) all revised their fourth-quarter earnings downward on poorer-than-expected same-store sales. 

Limited Brands Inc. (LTD:NYSE) said that sales rose 4% for December, well below Wall Street expectations - and Federated Department Stores (FD:NYSE) also said that sales rose 4.4%, below expectations for a 5.5% rise. All this below-expectation news is erasing all of yesterday's upside in the Retail sector - and the choppy trading of 2007 continues. 

This morning, the Retail Service HOLDRs (RTH:AMEX) is down 0.71 points on the reports. 

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