Black Friday: Bust or Blowout?

11/17/2011 10:20 am EST


Thomas Aspray

, Professional Trader & Analyst

Tuesday’s sharp jump in retail sales caught some by surprise, and suggested that consumer spending is healthier than many think. This was the fifth consecutive monthly increase. Electronics and building supplies led the way.

On the other hand, department-store and retail-apparel sales were down. The strong seasonal period for retail, as I noted last month, generally runs until at least the start of December, if not all the way until Christmas.

Despite the positive numbers, the outlook for Black Friday is still quite pessimistic…but is a blowout possible? Should you be looking to buy the retail stocks on a pullback? Let’s take a look.

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Chart Analysis: The S&P Retail Composite is up 14.8% from the October 4 lows, and is not far below the 2011 highs at 348.

  • The downtrend, line b, was broken on October 24, and now represents first support at 334
  • There is stronger support now at 324 and the September highs
  • The daily relative performance, or RS analysis, completed its bottom formation in late August, and it is well above its uptrend, line d. The weekly RS (not shown) is positive, and is well above its rising WMA
  • The daily on-balance volume (OBV) also completed its bottom formation by overcoming the resistance at line e
  • The index has long-term resistance from 2007 in the 360 area

The S&P Specialty Retail group is up 18.6% from the October lows, as it held the major 38.2% retracement support in August.

  • The short-term uptrend, line g, is not far below Wednesday’s close at 369, with stronger levels at 358-360
  • The RS analysis shows a strong uptrend from the August lows, line h, and made new highs this week. Its WMA is rising strongly
  • The daily OBV moved through resistance, line i, in October, and is holding above its WMA
  • There is next resistance at 385 (line f) with resistance from 2007 in the 404 area

NEXT: 2 Apparel Stocks to Watch


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Under Armour Inc. (UA) overcame its downtrend, line a, in October, and this now represents first support in the $78 area. UA is up over 29% from the October lows of $62.50.

  • The 38.2% support stands at $74.10, with the 50% support at $70
  • The daily RS line has just dropped below its WMA, but is still well above support at line b. The weekly RS analysis (not shown) did confirm the recent highs
  • The daily OBV still looks strong, as the volume was heavy in late October
  • Near-term resistance stands ,at $85-$86, and a close above this level will signal a resumption of the uptrend

Ralph Lauren (RL) made new highs in early November at $174. RL is up over 25% from the October lows of $121.30.

  • There is next support at $147, and then in the $139 area. The weekly uptrend, line d, is at $133
  • The weekly RS line bottomed out in 2010 and is above its rising WMA. The longer-term support at line e is well below current levels
  • The daily RS (not shown) did confirm the recent highs
  • The weekly OBV has dropped slightly below its WMA, and has important support at line f

What it Means: Until the last few weeks, there was little interest in the retail stocks, but the retail-sales data and the strong gains over the past six weeks has put many of the retail stocks in the headlines.

The short-term action suggests we could see a deeper correction, but then I would expect these two stocks to finish the year strong.

How to Profit: As per the October 5 article, investors should have bought Under Armour Inc. (UA) at $67.10, sold half the position at $76.32 for a 13.7% gain, and raised the stop on the remaining position to $68.62.

For new positions, buy Under Armour Inc. (UA) at $77.64, with a stop at $71.88 (risk of approx. 7.4%)

If you went long Ralph Lauren (RL) at $128.78, and sold half the position at $140.52, use a stop now at $132.42.

For new positions, buy Ralph Lauren (RL) at $146.80, with a stop at $138.44 (risk of approx. 5.7%)

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