Heroes to Zeros: Retail Stocks

Hey everyone!

Last week, I had the pleasure of joining Todd Schoenberger on the Buy Hold Sell show.

We discussed retail earnings and the week ahead, including tickers like Home Depot, Walmart, Macy’s, and Target. Learn more in the link below:

Since then, we’ve had some interesting results. This earnings quarter reminds me of Q1 and Q2 in 2022, where many more moves are outsized than average. Typically, 69% of stocks will stay within their expected move, but I would not say that was the case this quarter. Investors have been particularly antsy surrounding earnings, and there have been so many news-related catalysts. The geopolitical tensions have also added another layer of uncertainty. All of this has contributed to these outsized moves. Some quarters more than others see more outsized moves – it’s the flavor of the season!

But what’s interesting is that these outsized moves haven’t just been to the downside. Typically, tickers will roll over on bad news, but what we have seen more frequently this week is tickers that have been on a downward spiral coming out and giving us some positive news. This has been the case with the likes of Macy’s (M), Target (TGT), and Disney (DIS). But does that mean these zeros are turning into heroes? I don’t think so.

This quarter, we had a unique situation where the Nasdaq had a chance of falling off a cliff when it retested the 200 SMA on the daily chart. This resulted in a very high put/call ratio, where an outsized number of traders were short. There was also potential earnings destruction. Earnings destruction is where a stock has been on a downward spiral and clinging to a thread. If the earnings report is terrible, then the stock gets creamed. But you have to remember with this setup, it’s dependent on the earnings report being bad. If the catalyst is not bad, the stock will not destruction. So, what if the earnings report isn’t bad? What if there is also incredibly high short interest in the stock market?

This is the situation you get with M, TGT, and DIS. Stocks that have been on a downward spiral, that suddenly do something not terrible and they gap up 10%+. This is why, when a ticker has a potential earnings destruction setup, I don’t generally short it before earnings. I like to wait until after earnings to see if there is an opportunity to short it at resistance. A positive earnings move doesn’t mean the stock is suddenly en vogue again; it just means the conditions were ripe for a big surprise. Surprises that I highly doubt will last. It doesn’t change my opinion on the company or the stock at all. It just means the stocks have reached their inflection point and managed to jump from the depths of despair. Depths they will likely return to, again!

What about the heroes? Well, I already liked Home Depot (HD), and I’m glad to see that doing well post-earnings. I think HD will be back. The downward moves in WMT and TJX may suggest a bit of sector rotation, but it’ll depend on when they find support. I would like to see if I can buy the dip on these, but it’s not time yet.

So, where do we go from here? Look for post-earnings movers! The Nasdaq futures hit resistance at 16,000, and need a catalyst to get through. With most critical reports out of the way, what could be the next one?

Well, the indexes and many critical tickers are squeezing. It’s also seasonally the time of year when the market is strong. After the hold of the 200 SMA on the daily chart of the Nasdaq, plus the short squeeze higher…I am sticking with the long side. That was the critical moment and line in the sand for the market to turn around, and it did.




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