3 retail stocks making a quick recovery
- Nike (NKE) shares topped the charts on Thursday, gaining nearly 5% even as the rest of the market tumbles.
- lululemon (LULU) shares surged on Wednesday after the sportswear company announced details of its trade-in and resale program.
- The price action in Target (TGT) has turned bullish and suggests further upside to come.
Retail stocks are heating up and relative strength is becoming too powerful to ignore. Today’s trio gains stand in stark contrast to the weakness seen across the broader market. the S&P500 was unable to reconstruct a two-day rally from the March 29 peak. The lack of a sustained rally creates a difficult backdrop for buying stocks or deploying bullish trades.
But if you’re going shopping anyway, these retailers deserve special consideration. I find their ability to rise up in the face of the general apathy towards stocks at this time inspiring. Indeed, it could mean that more gains are in store.
Two of the three stocks I picked have made long-term trend reversals. And the third is following in their footsteps. Let’s take a look at each of them and build a smart options strategy to profit from them. Here are my top three fast-recovering retail stock picks:
|LULU||Lululemon Athletica Inc.||$390.78|
Retail stocks recover quickly: Nike (NKE)
Nike (NYSE:NKE) is in the early stages of its reversal attempt. Before Thursday, you couldn’t get me interested in the stock, but after surging almost 5%, the reversal attempt is ripe enough to play. We now have a higher pivot low in place and have pushed back above the 50 day moving average. The last auction failed, but this time we are attacking the 50 days from a much higher vantage point.
Specifically, NKE stock just completed a pivot lower and is only up two days. This leaves plenty of gas in the tank for tracking. Volume topped 200% of average daily turnover, suggesting heavy buyers rushed in. Notably, Nike held onto its gains even as the market selloff accelerated towards the close.
If we can clear Thursday’s high of $134.38 on Monday, bullish trades are worth it.
The exchange: Buy June bullish buy spread $135/$150 for $4.50.
You risk $4.50 to gain $11.50 if NKE stock goes above $150 at expiration.
Wall Street celebrated last month’s earnings report by lululemon (NASDAQ:LULU) pushing stocks to a three-month high. Since then we have seen prices stall to create a high base pattern. The 200-day moving average marked the upper end of the range, making it the obvious level to watch for the next breakout.
He arrived yesterday with welcome news.
The company announced an exchange and resale program called “Like New” that allows customers to trade in gently used clothing and receive store credit. The clothes would then be sold at a discount, potentially attracting a new range of consumers who were previously unwilling or unable to pay for Lululemon’s high-end apparel.
Time will tell what impact the program has on revenue. For now, it is creating buzz and helping buyers in the breakout bid. With LULU stock now above its moving average, bulls can walk away with confidence.
The exchange: Buy the June $400/$420 buy spread for $8.
You risk $8 to win $12 if LULU goes above $420 in the next two months.
Retail Stocks Making a Quick Recovery: Target (TGT)
Target (NYSE:TGT) shares many similarities with LULU and is the last of today’s retail stocks to buy. Recoveries based on better than expected fundamentals are always more durable than those based on fluff. Lululemon and Target saw their downward trends halted in their tracks by first quarter results. The Target release was good enough to deliver a 10% one-day gain for the stock.
Prices then paused for six weeks to digest the gain and build a base for further increase. We have since broken up. On Friday, the rally continued, pushing prices up 1.5% and breaking through the 200-day moving average for the first time this year. Volume patterns weigh heavily in favor of buyers and further support the upside.
The exchange: Buy June bullish buy spread $240/$260 for $6.70.
The maximum loss is $6.70 and the maximum gain is $13.30.
As of the date of publication, Tyler Craig had (neither directly nor indirectly) any position in the securities mentioned in this article.