Earnings news hits the skids next week. Only 18 S&P 500 (SPX) companies are on the schedule, a far cry from the activity of the past three weeks.
However, one sector will clearly be in the crosshairs with several major names reporting. Since I already spilled the beans in the title, you know I’m talking about retail, which has big-hitters Macy’s (M), Kohl’s (KSS), Nordstrom (JWN), Wal-Mart (WMT), Abercrombie and Fitch (ANF), and JC Penney (JCP) all stepping into the confessional.
The SPDR S&P Retail ETF (XRT) is showing signs of reversing higher.
Note in the chart below how XRT has spent this week bottoming out at its 50-day moving average, a trendline that helped the shares in early October. The ETF is up around 33% off its July bottom. (By the way, you think XRT might be a sell when it hits $37? Hey, I’m just asking.)
Three of XRT’s top 10 holdings report next week — Nordstrom, Priceline.com (PCLN), and Urban Outfitters (URBN). But expect the other S&P names to also hold sway over the sector, especially with the critical holiday season looming.
Friday’s jobs report probably will have an impact on retail, since the two are so closely linked. Keeping the unemployment rate below 10% should help. Anything in double digits, though, will probably blow the 50-day support right out of the water.
I mentioned the six S&P retailers reporting next week above. Which stock is the best of the bunch? Well, I know which one isn’t — Wal-Mart.
This stock is a disaster, and it’s down nearly 10% for the year and is one of the worst performers in the Dow (DJI).
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WMT’s daily chart shows the stock can’t gain any traction, trading mostly between $50 and $52 for the past three months. Stay away, unless you like selling option premium.
With the 800-lb. gorilla out of the way, we like Kohl’s (KSS) as a bullish play.
The stock has mimicked XRT by pulling back to its 50-day, which makes for an excellent entry point for a long position. A return to $60 is very possible, especially with a decent earnings report.
You should note, however, that $60 could be a problem. That’s where the shares stalled throughout most of October. It’s also the site of heavy November call open interest, which could add some resistance.
That said, a burst through $60 on solid earnings could propel the shares to substantial gains.
KSS reports on Nov. 12, with analysts expecting 57 cents, a modest 10% increase from a year ago. But the “whisper number” is 55 cents, a sign of some skepticism that we like to see for bullish plays. Lowered expectations are easier to overcome.
Given that KSS has beaten the earnings estimate for 17 straight quarters, we like the odds for the streak to continue.
Our expectations for KSS are modest for now — an increase of 5%-7% to the October top around the $60 level. But a solid earnings report could boost the shares beyond this resistance. That would make KSS a highflier among its retail brethren.
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