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Thursday, August 7, 2008

Wal-Mart: Weak Sales, Despite Stimulus and 'Slumming It' Effect

U.S. July Retail Sales Slow, Threatening Back-to-School Season: “U.S. retailers' sales in July rose at the slowest pace in four months as higher fuel and food costs discouraged consumers from visiting malls. Wal-Mart Stores Inc. said August sales won't grow as quickly as last month.”

Uh oh. As the economy deteriorates, the theory was that Wal-Mart would come out on top as middle class folks are forced into moving down the retail food chain. The theory was that the middle class would have to go ‘slumming it for a while’.

Don’t forget, those ridiculous stimulus checks are part of these numbers. So you have stimulus checks and the ‘slumming it effect’ STILL resulting in weak sales for July. This just can’t be good.

I have privately heard from retail analysts and those in the ‘export development’ arena of finance that they have started to see signs that several larger retailers are set to bite the dust in both Canada and the U.S.

Wal-Mart (WMT) looks to have failed to break out above resistance at $60.00. Poor earnings were the catalyst that put prices back “into the box”. WMT could be "dead money" and consolidate between $56 and $60 for any length of time. Failure to hold $56 and then again $55 would result in a fairly quick drop to the $50 area. This would signal a weak consumer economy indeed...

6 comments:

Mark said...

Any idea who might be in trouble? Sears?

Ben Bittrolff said...

Mark,

Sears US is...
Sears Canada isn't...

Vijay said...

Ben you should read this

Anonymous said...

Nice! Glad to see you moving to some analysis of Consumer Discretionaries. However, I don't think WMT is the best candidate for a breakdown. I expect to see the higher-end like TGT and WFMI offer better short opportunities.

Vijay -- the two major reasons for using SKF instead of shorting XLF outright are:

(1) Defined risk
(2) Cash accounts

You can only lose everything with SKF whereas with XLF you can lose everything plus the shirt on your back and then some. Also, cash accounts can't short so if you are stuck with a non-margin account, the short and ultra-shorts are the only way to be "not long" there is.

Your point is well-taken, though.

-Mike J.

Ben Bittrolff said...

Vijay,

Thanks for the link.

I trade. I don't invest. I'm in SKF exactly because it tracks the DAILY PERCENTAGE CHANGE of the index. I'm looking for short bursts of 'trending prices'. For this, this the Ultra Shorts compound the gains quickly.

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