Big Lots, Overstock Earnings Put Focus on Discount Retailers
It may be hard to think of two discount-based retailers trading more divergently than Big Lots (NYSE: BIG) and Overstock.com (NASDAQ: OSTK), both of which are scheduled to report quarterly earnings on Friday.
Big Lots has been rangebound for most of February, trading near its highest levels since April 2011. The stock has been trading consistently in bull market territory since mid-December, and is up more than 15% year to date.
On the other hand, there is Overstock.com. While BIG has been trading above its 200-day moving average for the past several weeks and more, shares of Overstock.com have been mired in bear market territory for more than a year, briefly climbing above its 200-day during the summer of 2011 before plunging back below that level en route to major, new lows here at the end of February 2012. Moreoevr, OSTK is again oversold, having dropped to oversold extremes in Tuesday’s session and following through to the downside by another 3% on Wednesday.
For traders and active investors with an eye on Big Lots, the fact that the stock reversed in Wednesday’s session following a spike into technically overbought territory is one reason to be wary of moving too quickly in BIG. With the stock rangebound for so many days and a quarterly earnings report right around the corner, waiting to see whether or not the market sells or buys whatever news Big Lots has to share on the earnings and revenue front may be a good idea. With neutral ratings of 4 out of 10 (one point away from “consider avoiding” territory, by the way), and a very modest negative edge (less than a quarter of a percent), there is really no quantified play on the stock at this time.
For its part, the extreme oversold conditions in Overstock.com may tempt some into looking at the stock as a potential “special situations” trade. And, to be sure, there is no denying how beaten-up OSTK has become over. Seen this way, Friday earnings announcement could be a catalyst that forces short sellers to cover and sends the stock soaring for a brief period as traders rush to buy back shares.
That said, high probability traders and more active investors would do well to avoid filling their shopping carts with stocks like Overstock.com. While a “special situations” trade every now and then can be a great way to take advantage of oversold (and overbought extremes), waiting for a pullback in bull market territory – such as the one that could follow any disappointment in Big Lot’s Friday’ report – likely is the smarter play trade in and trade out.
Stock ratings provided courtesy of PowerRatings. Information about quantified edges on stocks provided courtesy of The Machine.
David Penn is Editor in Chief of TradingMarkets.com