A month into the broader market’s outsized relief rally and it’s time to shop for short opportunities. Particularly, in these three well-known retailers before the next “one day sale” or larger discount rack rolls back out onto the floor of the New York Stock Exchange.
If it looks like a bear and smells like a bear, it probably is a bear. I’ve said that before, but the point is retail corporations are in bear markets.
Each of these retail stocks just happens to be in the position for shorting — that is, if you can turn off the wishful background chanting by privileged bulls addicted to low cheap money.
So let’s take a look and see what each of these retail stocks has to offer on and off the price chart, as well as what limited risk options strategies traders can apply in lieu of simply shorting shares.
Retail Stocks to Short: Macy’s, Inc. (M)
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Macy’s most recent earnings report topped Street estimates in late February. However, profits, sales and same-store comps were nonetheless lower year-over-year.
If we’re to believe management, the weak, but better-than-expected results were a reflection of a historically warm winter.
Macy’s bearish chart is a bit clearer regarding future prospects for this retail stock. M stock formed a bear flag which is stalling on the daily chart, losing the support of its 10-day simple moving average for the first time in a month.
Shown on the provided monthly view of M, Macy’s decisively broke through an uptrend dating back to 2009 — a bearish sign. Confirming weakness, the countertrend rally has put M just below its key pivot high from 2007 and resistance from recent “share-hoper,” er shareholder holdouts during 2015’s price swoon.
Altogether, and with signs of a weaker economy and likely little help from a handcuffed Federal Reserve, Macy’s is seen as a good short candidate.
Reviewing the Macy’s options board, the May $41 put is priced for $1.20 and attractive for bearish positioning in this retail stock, as premiums are fairly cheap and time decay isn’t a pressing issue for a few weeks.
And should a notorious Macy’s one day sale or multiple event days be in the offing, the M put stands to do quite well on a risk-to-reward basis.
Retail Stocks to Short: Nordstrom, Inc. (JWN)
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Fundamentally, this retail stock looks even worse: In February JWN tumbled following the outfit’s worse-than-expected results and slashed guidance.
More than a dozen analysts cut JWN estimates and/or ratings and CNBC’s James Cramer summed up Nordstrom’s results as “disastrous.”
Reviewing the Macy’s options board, the JWN July $55/$45 bear put spread, which trades for $2.75 with shares near $56, is attractive.
Option premiums in this retail stock aren’t as cheap for purchasing an outright put, so a bearish vertical in JWN, which reduces Greek risks, makes sense.
Using a wide July vertical and giving JWN room to challenge its year-to-date lows and capture a larger return of 263% also seems quite reasonable given a JWN stock hot streak counter to a chilly forecast and icy analyst reception.
Retail Stocks to Short: Kohl’s Corporation (KSS)
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Most recently, Kohl’s cut its full-year 2017 profit outlook below Street views, with a forecast calling for tepid sales growth of just 0.5%.
Technically, the bigger view in this retail stock also looks worrisome as the monthly KSS stock chart shows an existing triple top.
On top of this bearish pattern, or actually well below it following last year’s steep descent, Kohl’s shares are forming a common, but menacing bear flag under layers of technical resistance.
Reviewing the Kohl’s options board, the KSS July $45/$40 bear put spread for up to $1.10 is interesting in lieu of shorting this retail stock.
Option premiums are on the cheaper side in KSS, but as with JWN, the use of a vertical spread with sufficient time on the calendar (delivering solid profit potential of around 350% within the recent chillier lows in KSS) is a bargain worthy of consideration.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
