WaveStrength Radar for November 30, 2006

Macro Outlook

Does Wal-Mart (WMT:NYSE) stink, or is a serious problem brewing for retail? Both might easily be true, but this much is certain: For the first time in a decade, the Colossus of Bentonville has choked during the critical Christmas season.

Despite a campaign of aggressive price cutting that was giving many of its fellow heavyweights fits, WMT is expected to announce, based on its own estimates, that November sales fell for the first time in a decade.

The company has clearly lost direction, with the head office spewing out new strategies on an almost weekly basis that its 1.3 million employees at some 6,000 stores can’t seem to execute.

Why the flailing? CEO Lee Scott promised stockholders he would solve the company’s problems somehow. He obviously hasn’t figured out how. December sales are expected to come flat to +1%.

Market Trends

Oh woe is the retail industry…

The Retail Service HOLDRs (RTH:AMEX) is down again this morning… following a slight doji upside reversal from two days ago that did little to take back Monday’s losses.

Why is the RTH down again near $96.82?

Well, regardless of Wal-Mart’s news, which was already absorbed on Monday, Costco Wholesale Corp. (COST:NASDAQ) posted same-store sales of 5%, below analysts’ expectations of 5.7%.

On top of that, Pier One Imports Inc.’s (PIR:NYSE) same-store income fell a shocking 15.3% due poor home furnishing sales… Nordstrom Inc. (JWN:NYSE) hit a 5.4% sales increase instead of 5.7%… and Ann Taylor Stores Corp. (ANN:NYSE) fell 4.3%, almost three times the expected loss of only 1.7%!

That, my friends, is why the RTH is down today. Stores are beginning to report poor sales, and are continuing to verify my thesis that retail stocks will weaken until first-quarter earnings.

Material Profits

The Energy Information Administration will release the next natural gas weekly update at 2:00 pm EST today, so maybe we’ll find out why natural gas prices took a $0.12 drop this morning.

My guess is that warmer weather has limited the draw on natural gas stocks, and our inventories probably went up slightly… Or at least dipped less than analysts expected.

I’ll comment more tonight in Market Report.

Trading Tactics

It’s been a five-year struggle, but the day has finally come for Microsoft (MSFT:NASDAQ). They are finally on the verge of rolling out their new version of the popular Windows operating system. And Wall Street could care less.

Shares of MSFT today are trading down $0.08 (ho hum) while Chief Executive Steve Ballmer is traveling all over New York City trying to celebrate the release with anyone with a live feed camera and microphone. If a launch like this can’t rev up shares of MSFT, then what can?

Please note that all quoted currencies are in United States dollars, unless specifically stated otherwise.

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