4th Quarter Retail Trading Countdown presented by Greg Jensen.
Talking about retail in August. It’s not even Labor Day yet. I hope to show you that here in just a little bit. Before I get too far into that,
part of the big mystery I would say that a lot of investors like yourself and myself go through is how do I find opportunity amongst the tens of thousands
of different investment opportunities that are out there, all the different stocks, the bonds, the option strategies? Where do I begin? Where do I go? It
is, it’s a challenge. I think the mistake that I think too many people make is they try to trade everything.
One of the biggest pieces of advice that I will give you from a standpoint of what to trade is make sure and keep it limited. Know what you’re trading.
There’s a lot of places you can go to find information, whether it’s TV like CNBC, whether you’re spending money for newsletters or stock picking services,
whether you use maybe your broker to give you information. Maybe even you use Twitter, which to me actually is a pretty good source of information for
those of you who have never used it before. Twitter is actually a very interesting one.
For those of you who don’t follow me on Twitter already and you use Twitter, I’m simply @optionsanimal.com. I’m not one of those really obnoxious Twitter
guys who’s sending out a tweet every 30 seconds. I know there’s some of those out there that can be a little overwhelming. When I do see trading
opportunities and when I’m in the market, I will use Twitter oftentimes to talk about what I’m trading.
You will have to put up sometimes when the Dodgers are playing I may tweet about the Dodgers. I may send some pictures of some of my recent fly-fishing
adventures that I go on. It’s not a 100% business on Twitter for me, just so you know that. I’m going to make the disclaimer there, but I do talk about my
investments as well as I’m on Twitter.
The hard part is it’s still this vast pile of information out there, and where do I narrow it down? Back to what I would say my recommendation when you are
building your universe of investing is keep it relatively narrow. Choose a group of stocks, a watch list so to speak, and stay within that realm.
That’s not saying you can’t add to that watch list from time to time, but if you have a watch list of stocks in my opinion that is too big to fit on one
screen of your computer, if you have to scroll down through your watch list, it’s probably too big. The answer to that isn’t to just get a bigger monitor
either. If you’ve got a monitor the size of your wall so that you can monitor your 200 stocks, you’re probably not going to do a good job of doing it.
I’ve found the magic number for most people to be between about 20 to 30 equities that they can do a good job following. Outside of that, you’re really
starting to stretch yourself. That’s a little general talk.
Let me actually talk just a little bit about … and I’m going to bounce back and forth between a PowerPoint presentation and my brokerage account right now.
Wrong screen. There we go. I want to talk just briefly before we get into the retail space itself, is just talk really briefly about the overall market,
because there’s a couple of things that have me a little bit concerned.
I know we’re bouncing again a little bit more today, and that’s actually pretty important from a technical standpoint that the S&P tries to hold this
100-day moving average. It looks okay right now, but I still have to be aware of all of the potential issues. I’m still pretty cautious about the overall
S&P right now, even though again we bounced a little bit yesterday and we’re having a little bit of a follow-through bounce today. The markets look
relatively technically broken to me. I believe that we have potentially more weakness coming.
The fundamental reasons, of course you’ve heard all of them over the last several days. I just want to go back through the list of the fact that there’s a
lot of saber rattling going on in the Middle East. That’s the big headline story right now with the situation going on in Syria. Hopefully we can find a
diplomatic solution to that. I don’t know if we’re already beyond those lines. Again, according to President Obama we’ve crossed that red line, there is no
diplomatic solution left. I know Russia is trying to come to a diplomatic solution, at least that’s what they say. Not to get political, but it is
something I have to pay attention to because it’s impacting the financial markets.
I think the bigger situation that is still in front of us in regards to the overall market is what is going on with the Federal Reserve and the tapering
that could start as early as, and I believe will start as early as, the September Federal Reserve meeting. That we will start to see the FOMC, the Federal
Open Market Committee make a decision that they are going to slow down their bond purchases that they’ve been doing as quantitative easy measures.
I don’t believe that’s 100% priced into the market yet. If you remember back in May, this movement from May down to June lows was all about Fed Chairman
Bernanke talking about the tapering the first time he did. Then we bounced and rallied back up. Even though the conversations didn’t change we bounced and
rallied back higher. Now we’re starting to sell off again, probably pricing in the tapering once again, but I don’t think it’s all the way priced in.
Bobby, yes, my chart is a live feed by the way. I don’t know if it’s streaming very well from a standpoint of bandwidth over GoToWeb, but yes, it is a live
The other situations of course going on are not just the tapering, but the leadership change that’s going to be going on in the Federal Reserve, who’s
going to take Bernanke’s place when he steps down in January. Is it going to Janet Yellen, is it going to Larry Summers, is it going to be someone else
that we haven’t even really considered yet? I wish it would be Larry Fink, but I don’t think he’d ever leave BlackRock to go head the Federal Reserve. I
know I would never leave BlackRock if I had the choice of going there or the Federal Reserve. That’s obviously got some concern.
We’ve got our debt ceiling situation in Congress that may become a battle and could have an impact on the market. We have the weakness in the emerging
markets that’s going on right now with India and Brazil and Turkey and South Africa, and the continuing levels of debt. There’s a lot of fundamental things
along with the typical timing of September and October that have me from the overall market standpoint expecting a pullback.
I’m not expecting a big pullback yet. I don’t know that it’s going to be anything more than the garden variety eight to 10% correction that oftentimes
happens inside of a bullish market. I don’t know that either. I may change my tune if in fact we start to get more momentum and if the situation in Syria
particularly has the potential to get ugly, there’s a chance.
I’m relatively cautious on the overall S&P right now. Actually looking at the pattern of behavior for this typical time a year for August and
September, and again first part of October, it has a tendency to create some really good buying opportunities for the fourth quarter, particularly in the
What do I mean by that? Let me go back and show you a pattern. I know I’ve got it here somewhere. There it is, retail. Let me show you a typical pattern
that has occurred over the last … it occurs almost every year to be honest. There are a handful of years where it doesn’t, but the pattern is very similar.
The pattern is this. What I’ve got on here, the stock that I’m specifically looking at is actually the XRT. That is X-ray, Romeo, Tango. Notice the ticker
up here. This is for those of you who don’t know what that is, that is an ETF, the Spider ETF that tracks the retail index.
The pattern, if you’ve never noticed this before, a lot of times people think about holiday shopping and they think about … they get excitement around
holiday shopping really about the time of Thanksgiving. Then we think, “Okay, retail stocks.” That’s all they do it seems like in December on CNBC and
Bloomberg, is sit and cover the retail index and how much money is being spent, how stocks are reacting.
From a trader’s standpoint, what I have noticed over the many, many years that I have been doing this is that the pattern actually starts in August
oftentimes, sometimes even a little early. Sometimes they’ll start as early as July, sometimes it starts as late as September. August seems to be the sweet
spot when in fact retail is on sale so to speak, and the rally that occurs oftentimes peaks even as early as October. Definitely almost every situation
will peak even before the Thanksgiving holiday, which is when most people start thinking, “Okay, what retail stocks are hot? Who’s got the hot new
product?” The run is already behind you.
As far as trading it, let me just show you the pattern. I chose to only go back to 2006 just for the sake of time, because I think you’d get bored if we
just sat and went through every year. I wanted to show you the pattern. Notice in 2006 that the bottom was actually in the first part of August. We almost
retested the bottom again right towards the end of August. Pretty close. Then in 2006 the XRT took off to the upside and peaked right around Halloween,
right around the end of October.
I guess we peaked again, went right back up there again in the middle of November. Then as you can notice through the month of November it actually slid
slightly lower, got a little bit of a jump back up in December, but then ultimately at the end of December well off the highs.
Now 2007 and 2008, this pattern didn’t occur because the overall market was in chaos. Yes, remember the chaos actually started in the fourth quarter of
2007. 2008 was the really bad year, but the market really started digesting the fact that we’re having foreclosures rising at an alarming rate, home prices
started to peak out and started to decline. Both 2007 and 2008 this pattern did not occur, because of the overall bearish tone of the economy and the
market in general.
It’s not going to be 100% of the time that this pattern occurs, and it’s usually some type of major external factor that causes that. That’s why I started
this conversation starting out with, “Is there a major, major thing on the horizon for the US economy?” There may be. I don’t think there is yet, and I’m
not throwing in the towel in the markets just yet. I think the short-term trend is bearish, but that’s oftentimes the case in August and September. It
wasn’t in 2009 because the market was so bullish, but notice how the pattern still was the same with the XRT.
You could say the bottom really started here in July, but here’s the middle of August where we’re at right now, towards the end of August, and notice the
rally that occurred that actually peaked out in the middle of October. 2010, same rally. This one didn’t peak until the first part of December, so this one
actually kept running. That’s one of the nice things, is oftentimes it will keep running. You don’t have to sell out in October necessarily, but that’s
oftentimes when the peak does occur. The bottom as you can see was the end of the summer, and the rally started in the first part of September.
If you waited until Thanksgiving to get into the retail rally in 2010, yeah, you participated a little bit, but not much. Most of the rally had already
occurred. Now 2011 was a lot more volatile year. If you remember 2011, the situation that we had in the summer right here specifically was Greece and the
concern about the euro.
The bottom here actually … here we are in the middle of August again, end of August, we did bottom out here but then we came back and retested it again the
first part of October. Then notice the rally. That was a very violent rally, pretty quick from the bottom in October, but the peak was pre-Thanksgiving. In
fact, right here we actually had a lot of weakness during the Thanksgiving holiday and then finished towards the highs, but again the peak being again
Last year, same pattern. Now here the bottom was a little bit earlier. Last year the bottom actually was in end of July, and we went down and touched it
again the first week of August. This one, the rally peaked out actually in the middle of September. We got back pretty close to it again in October, but
the high of the rally was September. How can I trade this?
Let’s just look at again back at the overall general XRT and see where we’re at right now, to see what type of setup is going on. In this case we’ve had a
little bit of a pullback. In fact, the XRT today looks as if it’s, with the rest of the market, having a nice little bounce off its 100-day moving average.
If the general retail pattern holds, there’s a pretty good chance you’re going to see the XRT at a significantly higher level come the middle of October,
first part of November as the retail season approaches.
Again, the pattern here is that the rally is now. Let me pause for just a few minutes and address today, and I will address a couple of the questions that
a few of you have brought up: What’s different today versus some of these past years?
If we look back at 2011 and 2010, 2009, it’s important to try to put things into context right now as well. Today one big concern is the price of oil, and
whether or not the price of oil is going to have an impact on retail spending. I think that’s a fair concern. It’s probably the biggest argument against
the potential for retail spending that I see out there. Let me make another comparison.
If I look back at … Let me actually just do this here so you can see this. I might have to go back to it. Let me see if you can see the patterns in the
five-year chart. In fact, I’ve actually got them a little bit identified here. Notice the rally here, rally here, rally here. This is just since the bottom
of 2008. I don’t have the 2006 one inside here. In each one of these situations, in 2009, in 2010 and in 2011, maybe we weren’t facing necessarily really
high oil prices. I wouldn’t say we had really low oil prices. Maybe 2009 we had some much lower oil prices than we do now, but 2011 we still had high gas
prices. In fact I really don’t think the price at the pump right now is any different than it was in 2011, not a lot different anyway.
One thing that is definitely different now is the price of our homes in comparison to these three years. I know in 2009 homes were still on the decline,
majorly on the decline. The negative wealth effect that was going on amongst consumers was actually pretty bad. In fact, arguably, this year of 2013 is the
first time since the economy bottomed in the … since the market I should say bottomed in 2008. I don’t think the economy really bottomed until probably
In 2013 this is the first year that we’ve actually had I would arguably say a significant increase in the price of our homes, and I believe there’s going
to be a positive wealth effect that you’re going to see in retail spending that will counter the high oil prices.
As far as overall trend goes of retail right now, I think there’s a chance potentially for some lower lows. We may go down to 74 and test this low that we
hit back here, 73, 85 if this 100 breaks. Again, the pattern looks okay today. I’m still not buying it 100% that the markets are bouncing today, but
they’re giving it their best. I don’t think we’re going to go below 72. At that point, if we do get down there, that would be absolutely the time to jump
in on the retail space.
Timing might be … you make it a little bit better entry into timing if you’re looking at buying retail, maybe a little bit into September. I would say if
you’re waiting until October to jump into some of these retail names, then you’re going to miss the boat. How do I do it safely?
You don’t just go along. In my opinion this is where it comes down to needing to have a very good understanding of different options trades and different
ways to structure, whether it’s collar trades or married put strategies that allow you to enter into stocks and not feel like, “Okay, I’m taking a risk
right here of buying it maybe a little bit too high.” I can take a lot of that risk off the table by using some option strategies.
Excellent question asked by Fred right now. I’m going to repeat it for everybody so you guys can … because this goes right to where I want to talk about
next, is given the behavior of midlevel retail, would I consider discretionary high-end retailers or online retailers to be better than the XRT? Excellent
question. In fact, for me when I trade retail I don’t trade the XRT. That’s just me personally. It’s too slow.
Some of you might say, “That’s what I like. I like the slower. I can still play the general trend of the XRT and not expose myself to the risk of one
individual company.” I like the risk because with it comes higher reward. That’s a question you have to ask yourself is, “Do I like more risk or do I like
to play a little safer?”
Let me say if you wanted to just maybe play one individual name that’s going to be the safer of the retail names, it’s going to be a company like Wal-Mart.
The fact that Wal-Mart has had a nice little sell off here after its last earnings report, I believe it’s setting up an opportunity to get into a really
good name, a very stable company, very stable name that I think is going to participate in the rally going into the fourth quarter. It’s going to probably
be a lot more like the XRT however. It’s not going to be as volatile. Wal-Mart is one name that you can look at playing.
What I’m going to do right now is I’m going to just start going through several names on my list of retail stocks that I’m looking at. I’m going to give
you a handful of stay-away-froms and then I’m going to give you a handful of stocks, maybe a couple of handful of stocks that you can pick and choose and
decide which ones you feel maybe best fit your behavior and where you feel would best fit your trading ideas.
Let me do this first though. Let me go back to my PowerPoint, because there’s a couple of rules of thumb that I want to point out. Number one is be
prepared for volatility. The retail names in and of themselves can and are impacted by things called same store sales reports that oftentimes come—there
are monthly same store sales reports. These can be very volatile, especially for bigger names. By bigger names I mean like Target, and Nordstrom’s, and
American Eagle, and Abercrombie & Fitch. There is going to be some volatility in this space, and it’s not always just around their earnings report.
Just realize there are times when these things can get relatively volatile on you.
One of the next things, number two is use a thing called a channel check. Some people will say, “What’s a channel check?” I want to recommend an oldie but
goodie book here. There’s a book written by Peter Lynch, I’m sure many of you know who Peter Lynch is, some of you may not. Peter Lynch is one of the most
renowned mutual fund managers of our time, managed the Fidelity Magellan Fund for quite a number of years. He’s been retired for quite a few years, but
he’s also written several books on investing.
There’s a couple of different ones where he talks about retail. One of them is called … the book’s name is “One Up On Wall Street.” There’s another book
called ”Beating the Street.” Really, the message of both books are … I’ve read them both and they’re both about the same. I think he was just trying to
capitalize on his popularity and sell a few books that didn’t say a lot different one versus the other.
The point with these books is Peter Lynch used a strategy called the channel check. He did it himself. Some people have … a lot of professional analysts
will have sources at different stores to be able to check how sales are going. To me, it’s a really basic one that Peter Lynch recommended and all echoed
the same thing. I have done this on a number of occasions and noticed this pattern works relatively well.
The channel check is something along the lines of this. It is simply go to the store, go to the mall where many of these retail names have their
storefronts and just watch traffic. Walk around the mall, spend several hours in the mall. Go there on a Saturday because that’s going to be your most
likelihood of getting shoppers out, but then go during the week sometimes. Maybe go on a Wednesday evening. As you’re walking around the mall, simply
A lot of times people will say, “You also want to see people carrying bags,” but traffic equals revenue, whether that revenue happens, they’re at the time
or whether it happens at a later date, traffic typically equals revenue.
For those of you who wanted to see the drop that Apple had last year, simply needed to do channel checks in walking around the Apple stores for the six
months prior to that noticing the drop in people who were in the stores. It was there. You saw it in comparison anyhow.
I know that seems really basic and really vague, but it works. When you go to the malls, you’re going to be able to notice first and foremost how many
people are looking at their products. Let me go through a handful of names. I’ll come back to these patterns and the idea of a community here in just a
little bit. Let me go back to some of these individual names that I’m specifically looking at, and maybe some names that I’m going to avoid as I look at
this holiday season.
Let me throw out my avoid list first. I am going to avoid this next name like the plague, and that is JC Penney. Not just because I think their retail game
is getting destroyed, but they have been way too big of a center of the news in regards to Bill Ackman and the big fights, the big proxy fights have been
going along them in several hedge funds. JC Penney in my opinion is a dying company.
You could still make it a potential trade here if you understand how to do a hedge trade. Because if I look at this on a five-year chart, we’ve been down
here before and then things got exciting. This stock got as high as $43 in the first part of 2012, and it’s almost been cut … it’s down 70% from its high
just a couple of years ago. I know another dead company that was dead in the water at the end of 2012 that I actually am still saying stay away from but I
said stay away from last year and it’s actually turned out to be a phenomenal trade for 2013, and that is Best Buy.
I don’t know that JC Penney can do what Best Buy has done this year. I don’t know that anyone can really say how Best Buy has done what they’ve done this
year. I will say this about Best Buy. I think the magic is all priced in and I’m going to stay away from it. I think it’s already had its move.
If I’m comparing this to JC Penney, if I believe there’s a chance that JC Penney can stay alive and this company isn’t going to go completely under, right
now is a really good time to look at buying it because no one else wants to buy it right now. If I am going to buy it, I’m going to do it in the form of a
married put. I got asked by Brian what is a married put. Really simple option strategy that you essentially buy the stock and buy a protective put
In this case I’m going to buy my protective put with enough time to get me through the holiday season. I could argue and say November is probably enough
time because this holiday run most likely is going to peak by then. What I would do here is I would buy the stock, JC Penney at $12.73, and at the same
time buy a $12 put option giving me the right to sell the stock at $12. I’m going to have to spend $1.18 for that right.
This is not a risk-free trade but it’s a definitely a limited risk trade. The maximum risk I have here is about two dollars. Again I’m thinking about what
this is. It’s the right to sell the stock at 12. I’m buying it at $12.74 so I have $0.74 of risk in where I’m buying the stock and I have the right to sell
it, and I’m having just buy the put for $1.18. I also have that potential risk that if the stock keeps going down and ends up at $5.00, my risk is the
maximum of just under $2.00. That’s not too bad of risk compared to the potential upside that I may have, that if JC Penney decides to just rally even back
up to the 18 or $20 range, that it was even just earlier this year gives me a very nice return back to the upside.
I’m still putting on my stay away from list. Some of you might say, “Hey, this is actually interesting because it’s dead in the water like Best Buy was
dead in the water a year ago at this time.” It did. It had a horrible holiday quarter. If you look at where it was this time last year, August 24 th, Best Buy was a $19 stock. It got as low as $11 by the end of the year. Everyone was talking about Best Buy is going the way of Circuit City
and they’re going to shut their doors, and this year has been a phenomenal turnaround story for them at least from the stocks standpoint as.
I don’t know that JC Penney is in that category, but it’s an interesting play right now. I will say Best Buy, like I said, I’m staying away from this one.
I would not expect this thing to have any more of a rally that it’s had already, but it is up two percent today so you never know.
I will say I don’t like this stock for the fourth quarter, and that is Abercrombie & Fitch. Abercrombie & Fitch in my opinion has made some major
blunders in their marketing strategy recently. I’m going to give credit to Eric Hale, who’s one of the instructors at OptionsANIMAL, to being the first
person to point out to me anyway where Abercrombie was headed because of their marketing strategy.
We had one of our student summits for those of you who were there in Washington, DC at the first part of August. I remember Eric coming out, I believe it
was August 9th and 10th. I remember on August 9th Eric saying, “Abercrombie is going lower.”
They’ve made some major blunders. They really angered some of their main clients at some of the policies they’re having, specifically in regards to people
who are overweight. The stock has just been absolutely crushed, and I think the stock still goes lower from here. I’m staying away from Abercrombie this
fall. For me, Abercrombie in the past has been the name that I have played into the fall rally, but this year I’m not going to touch it.
Let me keep going into a couple of names and then I’ll hopefully have a little bit of time at the end of class to answer a handful of questions. Here’s the
names I do like. The first one I’ll throw out there is one of my favorites, I’ve been a longtime shareholder of this, and the company is Nike.
I believe Nike represents one of the best brands in the world. Nike has done a very good job of building their brands around specific athletes and using
the popularity of those athletes to help sell products. This is across sport, from tennis to golf to basketball to running. Nike has done a very good job
over the years of continuing to build their brand and continuing to service as many sports products as are available.
This is a stock that I think is set up to potentially have a decent fourth quarter. It’s coming off of a 52-week high recently, you may get it at a little
bit cheaper price, but you may not. The pullback from its high of 67 down here to about 63 may be an entry point to see this thing move higher into the
This is the first one on my list. Again, for me, this is one of my long-term holdings. I have been a Nike shareholder since 2003, so for 10 years I’ve
owned shares of Nike and will continue to hang on to my shares of Nike as this is one of those stocks that long-term I believe in. It doesn’t mean I don’t
hedge risk from time to time and use options to enhance my returns on it, but this is one of my long-term holdings.
The next one or the next couple I believe are specifically holiday plays. During the rest of the year they’re big names, they’re a couple of big box
retailers, but they do a very good job with holiday. In fact, for me I don’t think any companies do it as well as these two, the first one being Macy’s.
Macy’s does a phenomenal job with Christmas specifically, but they do a very good job with the holidays. Macy’s growing up, to me the Macy’s Thanksgiving
Day parade was the … that was the one of the best parts of the year because that’s when Christmas started.
Christmas time of the year, Macy’s has a tendency to have a nice little move. The fact that they’ve pulled back from again, from their 52-week high right
here of 50 and change; 50.77 was yesterday’s high. They’ve just bounced off of their 200-day moving average. The last couple of days, I actually like that
from a technical setup standpoint that this one looks to be a pretty good entry point right now. I think Macy’s is an interesting one to play through
probably Thanksgiving again.
Again, a ticker on this one is M … sorry I didn’t tell the ticker on Nike. That’s N-K-E was the ticker on Nike if you didn’t happen to catch that. That’s
November, Kilo, Echo. The ticker on Macy’s is simple. It’s just the letter M as in Michael.
The next one that goes right along with that, and I think that these guys do a very good job with Christmas as well, is Target. Target is also off of its
52-week high. In fact, it’s very quickly gone from its 52-week high to pretty close to its 52-week low. I think Target is a stock that because of the pull
back that it’s had is a pretty interesting opportunity.
Jeff points out a good question here. He points this out about Nike. It look like Nike didn’t rally last year, Macy’s didn’t either. If you’re looking at
Target, it didn’t look like Target really rallied either, did it? Remember 2012 and we’re looking at the XRT? It actually peaked in September, early in
September. Most of the rally last year occurred in August.
We haven’t had that this year in the XRT, the rally in retail this year. I believe this year the retail rally hasn’t happened yet, like it typically
doesn’t. Last year was a little bit early compared to the normal peak. Normally the peak occurs in October, sometimes even first part of November is where
the peak occurs.
I believe this year is set up a lot more normally than last year was. That’s still a good thing that you’re looking at patterns and looking that it—maybe
last year it didn’t, so maybe Nike might not be as good of a choice as some of the others we may look at here in just a minute.
Again, I like Target here. The ticker on this one is T-G-T. Again, I like it from the fact that it’s had a nice pullback. Target’s not going anywhere, and
this is an opportunity to buy it at a cheaper price and potentially take it into the fourth quarter.
The next one on the list, another big box retailer, this one is going to be a higher end name and that is Nordstrom. Nordstrom I believe is a very well run
company, obviously targeted to the little more affluent and I believe they’re doing just fine this year. Markets are just coming off 52-week highs, the
wealth affecting amongst the wealthy is still going pretty well. Tiffany’s is another example of those. Tiffany’s I think is … even with the pullback now
is probably creating opportunity. I like Tiffany’s, even though the short term has been to the downside. I closed a really nice trade on Tiffany’s just
yesterday where I had a bear call that I did right after earnings.
I think back to Nordstrom, this is another stock that I like fourth quarter wise, setting up again, picking it up for relatively inexpensive to where it
has been just in July.
Next one I want to go to is—well, I need to go to the other big box. This next one to be honest, if I had to just invest in one in the fourth quarter, if
that’s all I had, I’m going to do this one. It’s Costco. I believe Costco is one of the best run companies in the world. I believe they know who their
target market is, they do a very good job of bringing in products and enticing their target market into their stores and their stock reflects that.
The nice thing again is it’s pulled off pretty well off of the 52-week high at about 120. I think Costco here is an interesting one that you can look at
going into the fourth quarter with and taking some bullish stance on that, and maybe riding it back up to the 120, maybe even higher. Costco, the ticker on
that is C-O-S-T if you’re not familiar with Costco.
There’s a couple of questions that you’ve asked that I will get to here in just a minute. I want to get through the rest of this list of names before we
get too close to the end of the hour. I really like Costco. That’s another big, big name.
The next one I’m going to look at are maybe a little more specialty names but I think have opportunity upside. The first one I believe … this one is a
little bit higher risk because they’ve had some bad news of their own recently and the stock has not performed very well, that is American Eagle.
The ticker on this one is A-E-O. That’s Alpha, Echo, Oscar. American Eagle didn’t have very good same store sales numbers in August, they then got hurt
with Abercrombie’s bad news in the middle of August, and we’re sitting at a fresh 52-week low. In fact I may have to go back, see if we’re at a two year …
and I’m not quite at a two-year low, but getting pretty close to that.
I don’t know that you’re going to see them back up here at $24 at their all-time highs, or I shouldn’t even say that’s their all-time high but their
two-year high of $24, but I do think this is a stock that people are still going to go shop at. It’s a stock that’s going to get some excitement going into
the fourth quarter. You could see it move back up into the 17 range, maybe even back up into the high teens pushing this high of 20s if we get a good, nice
retail push in the fourth quarter.
It’s a little bit more of a speculated name because they have had some internal store issues that they’ve been battling, but it wouldn’t be the first time
that this company has shown this type of pattern either and set up a very good opportunity to buy this one at a low price. American Eagle is an interesting
one right here. I called this one a little bit more of a speculative play, but one nonetheless.
A couple of other specialty names, let’s go back to athletic apparel and talk about Under Armour. This is one of my favorite stocks in the market right
now. For those of you who are OptionsANIMAL students, you already know that. This has been on my watch list for the last several months. I believe Under
Armour is doing a lot of things correctly right now.
Under Armour has a lot of different product lines reaching from again, competing with the likes of Nike in the athletic apparel, they have branched into
warm weather wear. That’s a tongue twister, say that several times. They’ve branched into that very nicely. Again, I think this is a company that has a
good vision, a good mission, they’re very well run at the top of the ship and their stock’s been doing very well lately, even though this one is a lot
closer to a 52-week high than the other ones we’ve looked at. I believe this is a company that its product is going to continue to sell and continue to
sell well, and I think you’re going to see that in the fourth quarter. It’s comparable to another one that I would say is a very good holding, that is
Michael Kors, again, different side of the retail space there. Specialty product, now you’re more looking at exclusive, high-end shirts and handbags and
more accessories, but again right at a 52-week high or just shy of a 52-week high right now. Again, I think another one that can continue to go higher.
By the way, the ticker on Under Armour was U-A, that’s Umbrella, Alpha. This one is K-O-R-S. That’s Kilo, Oscar, Romeo, Sierra. I like both of these
specialty names, as I think even though they’re at 52-week highs they’ve got a lot of momentum, and a lot of good retail space and excitement going into
this fourth quarter. I believe Michael Kors maybe even has a little bit of edge on Under Armour in that side going into the fourth quarter, but both of
them I think are going to be very high on the gift list item for this holiday shopping season.
Going through my list, make sure I’ve covered them all. One more athletic one, Lululemon. These guys of course have been in the news the last several
months with both good news and bad news. What I like about Lululemon as I like to call on this the Lululemon is that they’re very volatile. I like the
volatility in this name because I believe the volatility creates opportunity.
They are still a very hot product and one that is trending well, their stock has mostly gone sideways for a year, but notice the volatile sideways. A year
ago at this time, they were at about the same price but they’ve gone as high as 82, they’ve gone as low as 59 and the movements can be very violent, and
they’re often center around their earnings events.
From a trader’s standpoint this creates a trading opportunity. They do have another earnings event coming up soon. I believe you can trade the earnings
event, number one, but then I also think that they have a tendency to participate in the September-October retail rally as well, so Lulu is an interesting
play here also. Again, the ticker on that one is L-U-L-U. That’s Lima, Uniform, Lima, Uniform.
I have one left. My last one I’m looking at this year from a retail space is Cabela’s. Cabela’s has done a lot of things right as well. This is a company
that has expanded. They’ve done a very good job of expansion. They’ve got a lot of different product lines. It’s not just a fishing store, hunting and
fishing store that a lot of people … that they grew up as. Now, they still are that but they generate a lot of their revenue on gun sales and ammunition
sales. There’s opportunity to trade that side of things, and Cabela’s has a tendency to be a good holiday fourth quarter stock as well. That’s the one
that’s going to wrap up my list of ones that I think give you an opportunity this fourth quarter.
If I didn’t mention a retail name it doesn’t mean that it’s not on the list, that it can’t be traded and can’t be made. It just comes down to the fact that
I’m limited in who I am. In fact, one of the key things that I rely on particularly on the retail side of the world is the community.
At OptionsANIMAL we have a phenomenal trading community from investors all around the world. Some of these ideas that I have been able to come up with over
the last several years have come from either some of the other instructors here at OptionsANIMAL or oftentimes some of the members of the community just
sharing trades and stocks that they’re looking at.
I know that’s how I found Lululemon. I know that’s how I’ve traded Michael Kors, I know that’s how I’ve traded Best Buy before in the past. Being part of
the community is one of the things that helps you set up not just your ideas for trading, but your support and your bouncing board to go bounce ideas—your
sounding board I should say, to go bounce ideas off to make sure you’re thinking your investments through before you’re doing it.
I know one of the things that I went to, I was at a conference that I spoke with Guy Adami as I mentioned a little bit before, in Washington, DC at the
beginning of this month. One of the things he pointed out was that when he was trading on the floor, trading on the desk at Goldman Sachs is they highly
recommended having a trading partner. In fact, it was a requirement. You had a trading partner. What you did with that trading partner is you bounced ideas
off of them. Not only from the standpoint of that you could get different insight as to how they were looking at it, but oftentimes one of the best things
is that you learned from one another.
That’s one of the things that we do at OptionsANIMAL in trying to teach our students on how to learn, is we send out every week trades with the intent of
teaching them how we trade. It’s not always from a standpoint that these trades go exactly as planned. We’ve sent out 209 of these trades; 11 of them are
open, nine of them have closed for loss, and 188 have closed for profit. The average ROI is 7.6%, 69 had to be adjusted, which is about a 95% win to loss
ratio. It’s not because we have a crystal ball, it’s because we have a different way of viewing the market. That is the idea of adjustments.
If you have interest in finding out more about OptionsANIMAL and how we can help you figure out how to adjust trades, how to be part of this community,
give us a phone call. We are the number-one educator in the industry in teaching people how to trade. Not just giving you ideas and showing you potential
opportunity, but helping you learn a way of trading that takes that risk out, it takes that fear of what’s going on in Syria out of the equation.
As far as … let me answer just a few questions and then we’ll wrap it up. First question is from Barb. If you’re long on all of these and buy once a year,
do you short-term trade these as well?
Yes. In most of those situations I was long, Barb. I’m trading a pattern here is what I’m doing. Most of these are short-term trades I’m talking about.
Most of these trades, I will look at getting out of by the peak in October or November when I feel the retail space … Excuse me. I had to put myself on
mute there. I was choking.
When I feel the retail space is topping out, these will be … most of them will be short-term trades. You heard me say some of them have been long-term
holdings; Nike, Under Armour for me is a long-term holding right now. I’ve been trading that one all year. A company like Costco I usually only trade once
a year. I’m not in it all year long. A company like Target, I’ll go make a trade on it but I won’t be in it all year long. Yes, the short-term answer is
for now I’m going long and most of these names are looking at opportunities to go long, but they’re going to be short-term trades.
William, I’ll probably do option trades on Costco rather than just a straight equity trade. Some of them I would maybe consider doing equity trades,
depending on where it’s set up. I think ones that are sitting closer to 52-week lows are safer equity trades, longer-term equity trades with Costco being
pretty closer to its 52 high. I’ll probably do something along the lines of a calendar, maybe a diagonal to look at trading that one.
There are a couple of other names some of you threw out there, and I think they’re okay. Urban Outfitters is one I trade, GameStop, interesting name as
well. Kohl’s is an interesting name here. Again, just for the sake of time I tried to go through a handful of them that were on the top of my list. Like I
say, there’s a couple of … there’s opportunity I believe just generally in the retail space, but if you wait until November I believe you’ve missed it. I
believe the run has already occurred.
All right, let’s see. We’ve got the Payment Guys. Yeah, Payment Guys are okay, Fred. Visa, MasterCard, eBay, Amazon I guess is an online one that I didn’t
bring up. You could potentially look at that one. They didn’t make the top of my list this year. Same thing with Coach. I think Coach is losing a little
bit of its ground to Michael Kors right now, but still an okay name, still wouldn’t be afraid of Coach right here.
Do I sell puts on the stock? You can. I specifically in this kind of trade, I’m not going to. The reason why is I believe this is a short-term momentum
trade, this fourth quarter can be a momentum rally. I traded going into the fourth quarter with … I want to do more than just capture the premium on
selling a put. I’m going to do either long calls, I’m going to do a vertical call spread or I’m going to go long the stock.
Bob, give us a phone call sometime today. They’ll take care of you. Good luck on your situation. Go win them. Yes, give us a phone call now. I know you
hear the phones ringing out there right now. If you can’t get through right away, we’ll take care of you. How many equity trade should you hold, Mike?
Depends on your bandwidth, how much time you have.
My general rule of thumb is I try to not hold any more than eight to ten positions at a time because I just don’t think your brain can effectively manage
it. If you have a trading partner like your spouse or someone else you might work with, combine brain power. You might be able to track a few more than
that. If you go much beyond that, you’re really…
I’ve been doing this for years and I still struggle and have my watch as be much higher than 20 stocks. If you’re much beyond that, then you’re just not
doing a good job.
William, I do avoid earnings without some type of hedge. If you’ve got earnings between now and then, which some of them might, they can have potential
earnings. In fact, you may want to have a hedge going through that earnings but yes, you’re right those earnings is down, especially in a stock like Lulu
that has huge moves at earnings.
All right, everyone. I’m going to wrap it up. Thanks for joining me today. Again, for those of you who are not part of the OA community already, which I
know many of you are but for those of you who are not, give us a phone call.
The one promise I can make you is we will make you a better trader, but you got to give us a phone call to become part of the community. Phone number is
down at the bottom, 888-297-9165. Thanks for spending the time with me today and I will look forward to seeing you at a future class. Thanks, everyone.