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Caution On Retailers. Perry Ellis Intl. Inc. (NASDAQ:PERY), Bed Bath & Beyond Inc. (NASDAQ:BBBY)

|Includes:BBBY, Perry Ellis International Inc. (PERY), RTH

Retailers have had quite a run in the last two weeks. Great earnings and forecasts from the likes of Perry Ellis International, Inc. (NASDAQ:PERY) and others have propelled the whole sector quickly higher since the markets overall bottom on February 5th, 2010.  As the economy appears to be back on track after the attempted 10% correction which fell just short, retailers are trying to squeeze every last penny.  The Retail HOLDRs (NYSE:RTH) has moved within range of its 52 week high and stocks like Bed Bath & Beyond Inc. (NASDAQ:BBBY) and Tiffany & Co. (NYSE:TIF) have continued to gain momentum from their last fall.

While all seems to be going well for retail in the eyes of Wall Street, I would caution Main Street may not be so kind.  Many of these retailers are priced to perfection and pricing wars along with a still stingy consumer may keep these from moving higher.  There is no debating that the bounce recently has been tremendous, however, once must look at the pattern and technicals along with the fundamentals.  All of these signal a near term priced to perfection retail stock scenerio.

When something is priced to perfection, generally it must continue to outperform in a greater and greater manner.  That is a lose, lose proposition for any company.  Any blip in the business can cause a dramatic decline.  The problem for retail is that it continues to be on the cliff of not only consumer spending but its own pricing war.  I caution on retail stocks and specifically look to possibly take advantage of a fall in the next month on the Retail HOLDRs (NYSE:RTH).  I look for a pullback below $90.00 from the current level of $94.50.

Gareth Soloway
Chief Market Strategist