Retail Round-Up

Early Indications Bullish for JWN

Dear Bottarelli Research Member,

If today’s retail earnings are any indication, then we could have a great play forming in Nordstrom (JWN – NYSE).

For example, Dillards, Sacks, and Target are all moving higher today on great earnings releases. These upside numbers come on the heels of Kohl’s and JC Penny, which each reported respective increases of 45% and 37% last Thursday. What’s more, even the lower-end retailers like Wal-Mart are reporting solid numbers, as the world’s largest retailer just announced an 11.5% earnings pop this morning.

From what I can tell, the only weak name is Federated Department Stores, which reported weak numbers due to their purchase of May Co. I’m highlighting all these retailers today because it could signal good things for Nordstrom (JWN – NYSE) leading into their upcoming earnings report after the bell on Monday, November 20th. If the low-end and mid-range retailers are all posting strong numbers, I would expect good things to come out of a high-end name like JWN. We could even experience a run-up in their share price leading into next Monday’s report, so let’s play this move using January calls.

PLAY: Buy the Nordstrom January 45 Calls (JWN AI) at or under $4.50, good for the day. Current bid/ask spread is $4.20 to $4.40. Place a protective stop loss at $2.00.

On the flipside, we could be seeing the beginning of a breakdown in Wyeth (WYE – NYSE).On Monday November 6^th, I pointed out that recent insider transaction filings showed a total of 11 insiders selling 1,130,824 shares of WYE for a total dollar value of $58,400,049. While it’s not uncommon to see insider sale transactions to raise capital, to see eleven insiders all selling certainly raises a warning flag. That’s why I wrote “something could be lurking on the horizon that serves as a negative catalyst for WYE, so let’s certainly keep an eye on the shares for a potential put buying opportunity.”

As it turns out, that negative catalyst could have been the Democratic election results, which are certainly a negative for big drug names like WYE. Chart-wise, today’s candlestick looks to be forming what’s called a “bearish engulfing pattern,” which signals that any upside strength will be sold off in the days that follow. Therefore, let’s enter into a downside position on WYE now.

PLAY: Buy the WYE December 50 Puts (WYE XJ) at or under $2.20, good for the day. Current bid/ask spread is $2.00 to $2.10. Place a protective stop loss at $1.10.

Also raising an eyebrow is the trading action in Southern Copper (PCU – NYSE).The metals giant is on the verge of testing their 50-day moving average right around the $50 level, which would be a good time to enter into longer-dated calls. I may be a day or two early on this one, but I think it’s a good idea to enter into some January calls to capitalize on any bounce near the 50-day moving average.

PLAY: Buy the PCU January 52.5 Calls (PCU AX) at or under $3.00, good for the day. Current bid/ask spread is $2.75 to $2.90. Place a protective stop loss at $1.30.

And finally, I think it’s a good idea to add to our SUN January 70 Calls (SUN AN). As I mentioned yesterday, oil has been bouncing around between $58 and $60 a barrel, which has delivered a high degree of volatility to the entire sector. I’m not one to bet against the oil names, and I’m sure that maintaining a longer-term upside play will eventually pay off. So let’s use this near-term dip to add more January calls to our ledger.

PLAY: Buy more SUN January 70 Calls (SUN AN) at or under $2.10, good for the day. Current bid/ask spread is $1.90 to $2.00. Maintain your $1.30 stop.

Lock and load!

Sincerely,