Profit-Taking, Ralph Lauren and the Retail Rout
To steal a line from The Police, when the world is running down, you trade the best of what’s still around.
For many traders, the selling early on Thanksgiving week was an opportunity to take profits in what have been surprisingly strong, surprisingly rapid gains in a number of stocks. Given an October that saw the S&P 500 rally more than 11%, it is no surprise that stocks like Polo Ralph Lauren (RL) gained more than 21% or Estee Lauder (EL) advanced by more than 35% from the beginning of October to the beginning of November.
And it should be no surprise that traders and active investors are taking these strong gains – and the new, 52-week highs that accompanied them – to the bank, collecting profits and sending the stocks lower.
Heading into Tuesday’s session, shares of Ralph Lauren have closed lower for five days in a row, the last three in technically oversold territory. Interestingly, the last time RL finished lower for three or more consecutive days, including a close in oversold territory, was in the first few days of last month. In fact, it was that three-day pullback that set the stage for the rally that took RL to new, 52-week highs in the first half of October.
Shares of EL are also in retreat from recent 52-week highs. Pulling back by more than 3% in trading on Monday, shares of Estee Lauder Companies have closed lower for the past four days in a row (the most recent three in oversold territory).
Both Polo Ralph Lauren and Estee Lauder have earned ratings of 8 out of 10. This puts the stocks in our “consider buying” category of stocks that have pulled back to levels where they have historically attracted short term buying interest. It’s worth noting that the current ratings in both stocks are the highest either stock has earned in months.
Other high-end retailers include Liz Claiborne (LIZ) and Coach (COH), both of which also earned 8 out of 10 ratings ahead of trading on Tuesday. Both LIZ and COH have closed lower for five trading days in a row and are deeply oversold short term.
Quantified data and research on stocks like RL is available each evening after the market close. To learn more, click here.
David Penn is Editor in Chief of TradingMarkets.com