With the holiday shopping season well under way, retailers are closely watching the weekly receipts and keeping their fingers crossed that weary consumers are willing to open up their wallets and pocketbooks again. Along these lines, economic data has been largely supportive, with retail sales nearly doubling analyst expectations in November and yet another rise in the University of Michigan/Reuters consumer sentiment index. Overall, the retail sector has put in a respectable performance this year, particularly considering widespread concerns that consumers are fearful.
For instance, the Retail HOLDRS Trust (NYSE: RTH, Stock Forum) has soared more than 25% since the beginning of the year, keeping pace with the broader market. After putting in a double bottom at the 60 level in March, the exchange-traded fund (ETF) has skipped steadily higher along its 10-week and 20-week moving averages.
Meanwhile, options players have loaded up on bearish bets in anticipation of a pullback. The Schaeffer's put/call open interest ratio (SOIR) for RTH stands at an annual peak of 2.58, as put open interest more than doubles call open interest among options slated to expire in less than three months. This combination of pessimism and technical strength has bullish implications from a contrarian perspective, as an unwinding of these bearish bets could add fuel to the sector's uptrend.
Within the retail sector, Nordstrom, Inc. (NYSE: JWN, Stock Forum) looks especially promising for bullish investors. The company is one of the nation's largest upscale apparel and shoe retailers, according to Hoover's selling clothes, shoes, and accessories through about 110 Nordstrom stores and about 60 outlet stores in more than 25 states. It also operates a pair of "Last Chance" clearance stores, two Jeffrey luxury boutiques, and sells goods online and through catalogs. With its easy-return policy and touches such as thank-you notes from employees, Nordstrom has earned a reputation for top-notch customer service.
Technically speaking, the stock has soared more than 176% since the beginning of the year, easily outpacing the broad market and many of its peers. After tagging a low in November of $6.61, the equity has stair-stepped higher, creating a series of higher highs and higher lows with help from its 10-week and 20-week moving averages. What's more, the stock has pulled its 10-month and 20-month trendlines into a bullish
Despite the stock's stellar uptrend, options players are extremely skeptical. The stock's SOIR stands at 2.34, as put open interest more than doubles call open interest among options slated to expire in less than three months. This reading is also higher than 83% of all those taken during the past year. In other words, short-term options players have been more skeptically aligned toward the shares only 17% of the time during the past 52 weeks.
Checking in with data from the Chicago Board Options Exchange (CBOE) and the International Securities Exchange (ISE), however, reveals that this pessimism may be in the process of unwinding. For instance, the 10-day ISE/CBOE call/put ratio of 1.27 means that calls bought to open have outnumbered puts purchased during the prior two weeks. This ratio also ranks above 90% of those taken in the past year, indicating that options traders have rarely snatched up calls at a faster pace.
Elsewhere, the bears have taken up a healthy position against the shares. During the past month, the number of JWN shares sold short rose by nearly 15%, resulting in about 22 million shorted shares. At more than 13% of the company's total float, this represents ample sideline money for a strong rally, should the bears be forced to unwind their short positions.
There is also some room for upgrades from Wall Street, as nine of the 19 analysts following JWN rate it a "hold" or worse, according to Zacks. In fact, the average 12-month price target for JWN stands at $38.35, according to Thomson Reuters, which could lead to valuation-related upgrades from the brokerage community. Such moves from analysts could help speed up an unwinding of negativity for JWN, thus providing a stiff tailwind for the equity as it continues its trek skyward.
Discloser: Joseph Hargett has no financial interest in any of the equities or products mentioned in this column.