Retail Sector Chaos Could Mean Chance to Buy Cheap
Monday, June 2nd, 2008
By George Leong, B.Comm. for Profit Confidential
Stock markets have been on a downtrend since trading on May 15, when the DOW tested 13,000 and the NASDAQ was above 2,500. There has been no change in the situation, as the climate for stocks remains risky and has a downward bias, as indicated by mixed market breadth.
Oil prices continue to be a problem and are clearly impacting the way consumers think about spending, The Conference Board Consumer Confidence Index for April fell to its lowest point in about 16 years, after reporting a reading of 57.2 compared to a evised 62.8. The reading was well below the estimated 60.0 predicted by economists in a Thomson Financial/IFR survey. Worse yet, consumer confidence has declined for five straight months and, in my view, it continues to suggest additional slowness in the economy and will impact corporate profits,
In the retail sector, I feel that consumers will continue to be more discriminate when buying and deciding where to spend their funds. The focus remains with buying essentials and those goods necessary to survive. No new cars, appliances, electronic goods, or splurging on a fancy restaurant. Instead, shoppers are heading to the discounters and wholesale clubs to economize on money.
Retailers that sell non-essential goods at regular prices will suffer. As I have said on numerous times in past commentaries, the news points to a slowdown in the works.
My view on the retail sector remains the same. The ripple effect from the housing market may continue to spread unless we see some stability in the credit and housing markets. We are seeing weakness across the board from the discounters to higher-end luxury goods retailers.
My advice is to continue to tread carefully in retail. A slowdown and/or recession could kill retail stocks, although you might also look at buying on extreme weakness with brand name retail stocks. Sometimes the best time to buy is when there is chaos.
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Tags: DOW, retail sector, stock market
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
