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Retail stocks and market direction

Some of the top performing names out there are retailers, what a turnaround when just a few short months ago they were down in the dumps. Here is a brief list of some of the names that are putting in new highs AMZN, JCG, SKX,BWS, PSUN, ARO,MW, RCKY, etc. The list is quite diverse; stocks in almost every segment of the retail sector are posting new highs.

Let's look at few other factors

Analysts at International strategy and investment (ISI) reported that their retail survey results surged 15% in comparison to a similar survey that was conducted two weeks ago. They go on to state that after the weak numbers in September same store sales should rise 3% in October and Nov and December should experience even higher spikes. As sales virtually collapsed last Nov and December, year over year comparison will probably produce even higher numbers.

Most Importantly they state that there is a 88% correlation between holiday sales and stock market performance. Given that last years sales were so rotten a small up tick could really have a positive effect, especially if these numbers are blown out of proportion (as they most likely will) by the analysts on Wall Street. Another thing many analysts will cite is that while employment numbers are not improving, the rate at which the economy is shedding jobs is declining. ISI researchers state that the rate of decline will drop to 63,000 in Oct and perhaps as low as 37,000 in December. The bulls in Wall Street will jump at these numbers and fund managers who have been sitting on the sidelines could suddenly pour a whole lot of money into this market.

Our take for awhile has been that the market needs to let out some steam, but that it still has more upside potential. Ultimately, we expect the markets to resume their main downward trend and should end 2010 on a lower note. However, the above estimate and projections could add extra fuel to the markets in the interim and drive them up a lot higher than most bears could ever dream of.  One must remember that there is a lot of money still sitting on the sidelines and if this money starts to pour into the markets, then in the short term fundamentals and technicals will simply not matter at all. 

Our suggestion is to wait for the markets to pull-back before opening new positions. After a decent pull long positions can be opened. More aggressive players can short the market and close these positions after 10% plus correction and then start looking for entry points to open up long positions.

To play the short side players can look into the following ETF's

To play the long side after a pull back, consider the following ETF's

Disclosure; we have no positions in the above mentioned stocks or ETF's