Has Retail Hit a Ceiling?

Nobody should be surprised nowadays when the market opens the week in the green. We have now consecutively closed a Monday's trading day in the positive for 3 consecutive months. Call it whatever you may, but the fact is, taking long positions just before close on Fridays is starting to sound like a guarantee return. Today was no different after responding to Friday's big down day by having the Dow close up 143 points. Not too shabby for a Monday.

Just as I figured on Thursday and wrote about, we saw a lot of people close out positions during Friday's trading. For those who took advantage of the selling, saw some good returns by close. Hopefully, you got out before close, as most of those gains were taken away today. This week, all eyes are on unemployment. It is clear that consumers have been much more active the past couple months. You can see that by your neighbors new car or house add-on, no parking spaces at the mall anymore, or the long wait at your favorite restaurant. It is pretty evident that people are out spending. Now the big question is, is this real consumer created income being spent or is it just government money? Is this extra cash that consumers are enjoying because they no longer pay their mortgage? I know a few of those. Friday will help diagnose whether the consumer spending is being backed up by an increase in jobs or if we are all somehow increasing our discretionary income somehow. Expect to see some volatility the closer we come to the announcement, especially starting Wednesday.

I said in post a couple months ago that retail should go for a nice little run in the short term. Indeed we have seen that come to pass. Retail stocks have rebounded substantially, with the help of positive earning reports and the overall market getting a boost. However, I did also give a disclaimer that I felt the boost would be short term and soon become overbought. Well, I believe we are getting closer and closer to that overbought stage. The above video, which was posted by MPTrader.com, discusses the recent movements of retail and gives some graphical evidence of why we should be seeing a correction shortly. It is clear retail is overbought at this point, but that fact alone has not stopped other markets (financials and energy) to continue to go up. However, coupled with some graphical momentum, I would say a soon turn in retail stocks is a pretty good bet.

May has officially begun and we will soon find out whether or not we are in for the usual May decline. Bulls would love to see yet another strong correction opportunity be overcome by even more buying. I do see mid May being a difficult time to keep support levels, even with a positive employment report.

BP continues to have its problems while dealing with clean up with its recent oil spill in the Gulf. Expect their stock to be a dog for the time being, as this kind of press is rarely good for consumer confidence. These situations tend to cause for an overselling of stock at a certain point, so a pick up of some BP in coming weeks could be a good play for a nice quick 5-10% correction as it gets oversold. At any rate, markets may be boring tomorrow but I expect to start seeing some more movement as we get closer to Friday. You may also want to consider just packing carry-ons from this time forward, as airlines have made an estimated $7.8 billion last years just on fees. Maybe you should just rent the skis. Ya, that policy won't be going anywhere for a while. Happy Trading.



    Retail will make a comeback but it will be a long hard slog.

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