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Profit From The Retail Sales Numbers

|Includes:AEO, BBY, M, RL, VanEck Vectors Retail ETF (RTH)

Retail sales for November came in at 0.2%. This number was a disappointment to the market but ultimately had little impact on stocks outside the retail sector. The S&P 500 is trading up 5 points on the day, just shy of a half-percent gain. All eyes continue to be on Europe and at 2:15pm ET today, the Federal Reserve will release their policy statement on interest rates.

Retail sales hit key players hard today. The Retail HOLDRs (ETF) (NYSEARCA:RTH) is trading at $111.12, -1.09 (-0.97%). Note the market trading higher, but the retail sector down over one-percent. In addition to the poor retail sales numbers, Best Buy Co., Inc. (NYSE:BBY) disappointed Wall Street on the earnings front. The stock is dropping, trading at $24.84, -3.23 (-11.51%). This is a rough combination for retail stocks to handle.

The outlook for retail sales is murky to say the least. One of the main problems is the recent run-up in the sector. The RTH, which is the retail ETF, has jumped from a low of $94.00 to a recent high just a week ago of over $114.00. Even with the drop today, the RTH may head lower in the new year. It is not uncommon for the retail sector to fall after the new year as Wall Street unloads the stocks following the holidays.

Where to buy Best Buy?

Best Buy has major support on the daily chart at $24.25. This is a major gap fill and should hold in the near future. Eventually, should that level break, look for support at the double bottom of $21.79.

Ralph Lauren Corp (NYSE:RL) is another key retail stock. The caution flag must be raised on this one as well due to a head and shoulder pattern on the daily chart. Head and shoulder patterns are bearish by nature. It will trigger on a close below $142.00. Downside targets for support are $134.70 and $121.00.

The bottom line on retail stocks can be seen. This holiday is not as cheerful as they may have wished. With many retail stocks trading near their highs on the holiday buzz, caution must be used as downside is still possible.

Gareth Soloway

Stocks: RTH, BBY, RL, AEO, M