Trading By the Numbers: Why Wait Out the Rally in Retail?
For all the concerns over the economy, it is worth noting that some of the best performing stocks in recent days are retailers.
Shares of Liz Claiborne (LIZ), for example, have soared from their early October lows. Deeply oversold at the beginning of the month, shares of LIZ have gained over 60% in less than ten days.
Even stocks like Sears Holding Corp (SHLD) and Supervalu (SVU), both far closer to the middle of the retail spectrum, have been standout performers in October. SHLD has gained more than 30% since the beginning of the month and is up six out of the past seven trading days. Shares of SVU have gained nearly 24% over the same period, and are on an equally incredible win streak. Heading into trading on Wednesday, shares of SVU have closed higher for nine out of the past eleven trading days.
For traders who have been looking for an opportunity to buy into the market’s rally, stocks like these are often tempting targets. But successful trading and investing is as much a game of when to buy as what to buy. And due to the big short-term rallies in these stocks, traders and investors may be better off waiting for a pullback to lower levels.
Gains this rapid are typically not sustainable in the short term, and historically have been met by either selling and profit-taking in the case of bull markets, or renewed short selling in the case of bear markets. By waiting for stocks like these to pull back in the short term, active investors often can buy them at effectively “sale prices.” And for short term traders, waiting to buy high-flying stocks after they have pulled back is actually a quantified way to potentially increase your accuracy rate as a trader, as well.
The stocks in today’s report were drawn from the data and research available through PowerRatings. To find out more, click here.
David Penn is Editor in Chief of TradingMarkets.com