Nordstrom (JWN) is a fashion specialty retailer that typically sets up shop in America’s finer malls. In fact, the company operates in just 28 states, so we’re not talking Wal-Mart (WMT) here.
The company is set to report on May 14, and it hasn’t missed an earnings estimate in two years.
On the other hand, profits have been shrinking. During the past four quarters, earnings have dropped by an average of 32%. But analysts look for 59% shrinkage this quarter. Nothing like lowering the expectation bar.
On the chart, JWN has outperformed the retail sector in a big way, nearly doubling off its March low. And its 10-day moving average has provided key support for the rally.
>
On the sentiment side, JWN isn’t seeing a whole lot of love.
Only five of 12 analysts rate the shares a “buy,” with two considering the stock a rare “strong sell” (apparently they don’t look at the charts).
The put/call ratio is trending higher (a sign of gaining pessimism), although it is far from an extreme. And the short-interest ratio sits above 5.0, indicating some potential for more buying from a short squeeze.
Remember that optimistic sentiment represents higher expectations and, thus, can create some vulnerability if those expectations aren’t met. Conversely, pessimism reflects lower expectations that often lead to upside earnings surprises.
While sentiment toward JWN is not screamingly bearish, it certainly is not in-line with a stock with the strength the stock has shown during the past two months. Actually, I wouldn’t mind a mild pullback to the 10-day or even the 20-day moving average (right around the $22 level).
JWN has the potential to move sharply after earnings. During the past two quarters, the stock has moved an average of 20% in the week following its report.
With technical support in place and plenty of pessimism ready to unwind, we wouldn’t be surprised to see the stock ascend to the next area of resistance around the $30 level.
You may want to consider buying call options on JWN before the company reports earnings.
Don’t sit on the sidelines this earnings season. Get 12 Keys to Trading Earnings for Profits.
Jon Lewis is the co-editor of The Winning Edge trading service designed to help you make options profits around corporate earnings and other market events. For more information about Jon, read his bio here.
