Yesterday, we had a fantastic rally, but the question will be can it continue today. The big announcements are in the retail sector, the job reports, and some key earnings that will shape the day. However, more and more, I am hesitating on the fundamentals as the market continues to trade on sentiment. I will do my best to lay out the fundamentals here and what they mean, but its any guess where we are going now.
To start, futures are up very sharply going into the trading day on a number of bullish indicators, with the Dow currently up almost 100 points (8:00 AM). The extended excitement about the Fed report is definitely fueling some of the higher prices, but the real fuel so far this morning is coming from a fresh batch of positive earnings from a new sector, retail and Europe’s better than expected contraction. Germany and France in Q2 of 2009 even swung to gains. This global news has been very positive for the futures. However, the market is completely ignoring the fact that foreclosures rose 7% in the month of July to record levels. Europe’s success and earnings are overpowering this small, tiny snafou.
On the earnings front, three key retailers in three different sectors all reported positive earnings surprises. Wal-Mart Stores led the way earning an EPS of 0.88, beating the estimates of 0.85, as well as, boosting their yearly outlook. On the department store front, Kohl’s slightly beat earnings estimates with an EPS of 0.75 compared to 0.74. Specialty stores got a nice boost, as Urban Outfitters surpassed earnings expectations, posting an EPS of 0.29 while analysts had expected an EPS of 0.26. The company saw its revenue increase, which is a very positive number, as well. The three 
companies definitely gave a nice shot in the arm to the retail sector, but we will still have to see retail sales do in the release at 8:30 AM before we start to party!
Oil rose throughout the rest of the world on Thursday’s trading on the positive news from the IEA about increasing oil consumption and demand, but we will have to wait to see the new data on retail sales and jobless claims before taking any position on which way oil may go.
If the market opened right now (the time is 8:20 AM), I would be very bullish and recommend really any retail stock. However, we really need to see the retail sales and jobless claims before making any decision. If they are really off, it may make for some great short sales as the market might turn negative on the day.
8:33 AM Update: Retail sales fall more than expected. Retail sales, even including inflated Cash for Clunkered automakers, fell 0.1%. Without the retail market was down 0.6%. Additionally, jobless claims rose more than expected, with 558,000 new claims last week. That was 14,000 higher than expected results.
This is all very bad for the market. I have not gotten the up to minute futures data yet, but going into the Dow was up 104 points and Nasdaq was up close to 19 points.
Short time?
Buy Pick of the Day: Ultrashort Proshares Financials
Futures dropped 40 points after the report came out. Today is suddenly going from looking very positive to negative. So, we want to position ourselves in such a way that we can benefit if the market turns red. The market should begin to come under selling pressure with the bad economic data that sort of neutralizes the earnings report. The rise in unemployment also axes the positive thoughts people were starting to have about the fact that unemployment was making a turn around. With how much the market jumped yesterday, some profit taking on this news should be a must for investors.
With the results on the retail sales, compared to the earnings report, it will be very interesting to see where retail goes on the day. It may be buoyed by good earnings and see neutral ground as investors get stock specific. So let’s avoid that section.
Instead, I think its time to enter the much overweighted and overbought financial sector via Ultrashort ProShares Financials (SKF).
Financials, as a whole, have benefitted unbelievably from the recent market gains, some gaining as much as 100% in a month. The sector is very overbought, and it made things even more overweight with yesterday’s gains. SKF appears in the pre-market to be down 2.5%. There is really no reason to believe that this will not change around unless investors just ignore completely any fundamentals in the market…as they love to do. I think, however, the lowered price is great for a cheap entry on what could be a very large day for the ETF.
SKF has lost 40% in the past month, and the stock is completely oversold and near its lower bollinger band. The market is a technical nightmare, but what the chart shows us is that this is momentum that eventually will be broken. We can still be in a bull market, but profits will be taken. Today, with this news, you have to believe SKF is ready for a move up even if it opens lower.
Sell Pick of the Day: Maidenform Brands (MFB)
What a solid quarter for the maker of women’s clothing. The long term prospects for this company are very solid, but the company may be the most overvalued retail stock in the entire sector. The stock, yesterday, jumped 7% on 24% EPS surprise and solid outlook. However, the company jumped outside of its upper bollinger band. This is a red flag to any investor of a stock that is going to have a pullback. With the retail report, this gives the stock a catalyst to move back today, even with the solid earnings from other retailers.
The stock has jumped 25% in one month alone. It is just too much, too fast, and the stock is looking for a heavy technical pullback. The technicals are definitely not the market’s friend, but in this case, we should all be looking for a pullback on the stock. Another reason I look a pullback is that Maidenform’s rival, Warnaco Group Inc., who is a women’s retailer missed estimates. This should not have an overwhelming affect, but coupled with the retail sales disappointment, it should give more reason to pull the trigger.
In the long run, on any pullback of 5%, I would recommend this as a buy. The way to trade the market, though, with a solid stock like this is buy and hold for these gains, short back down, and rebuy again.
Entry: I recommend entering at the start of the day, as I don’t think the stock will have much gapping up or down, and it should trend down from there.
Exit: Pulling the plug and covering on 2-3% gains from entry at the open is a solid but safe play. Stop loss of 3% is recommended on the top side.
