Earnings: Retailers Up Next

Six straight days of gains for the Dow Jones Industrial Average is impressive, but yesterday's session is the inverse of recent days that began slow or even under pressure only to fight off resistance and close in the plus column. It goes without saying (or writing) that the market needs to take a pit stop, or for some a freefall, to get back to the long-term trend.

Of course, that being said, there is also an underlying angst that the market can't stall or can't afford to be down for too long. Considering how quickly the NASDAQ Composite gave up 5.0% just a couple of weeks ago there is certain fragility to the rally that has been built on very light volume.

But there is no denying the overarching theme to the market; buy on dips and keep it moving. The next couple of sessions are going to take direction from reads and assumptions on consumers as retailers like Wal-Mart (WMT), JC Penney (JCP), and Abercrombie & Fitch (ANF) report third quarter earnings. Yesterday, Wal-Mart Chairman (and former CEO) Lee Scott issued a sober assessment on the holiday shopping season, but the stock is still clinging to gains.

It's all a game of expectations. This morning, Macy's (M) raised its holiday quarter earnings guidance but to a level under consensus, so the stock is lower. Despite 10.2% unemployment the Street is looking for more than a pulse or crossing the easy hurdles of year to year comparisons. People are spending money on trips (witness yesterday's results from Priceline; ticker PCLN) and may be prepared to step it up from deep discounters. In fact, the best news of the session is the earnings results from Toll Brothers (TOL), which blew away the Street. This is a luxury homebuilder selling in the face of lower prices and limited availability of jumbo loans.

Couple this with strong results from Beazer Homes (BZH) Tuesday and there seems to be something brewing in the housing market. Now, how much is organic and how much is government induced? The Dow Jones US Home Construction Index ($DJUSHB) was up big yesterday but is making a series of lower highs after reaching a double-top in September.

There is also a massive downside gap, but that will only be filled in a replay of late last year and early this year. I think that the group is a buy/hold for now and could rally until the first-time homebuyer tax credit program has run its course (now slated to be the end of April).

By the way, I've been urging everyone to be long the market even in the face of serious issues that could have dire consequences. The chance of a double-dip recession and massive inflation are real, but I think they happen far enough down the road for big money to be made in the meantime.

Comments

[Gary A:]

How can we trust any rosy numbers from the government? Especially when October government sales receipts were down 18 percent? States are facing massive deficits.

So how is spending ok, how will the holidays be ok. How will the stock market be ok? After awhile liquidity itself won't cause a pig to fly indefinitely.

Nov 12 06:12 PM