How to Play the Growing Retail Divide This Holiday Season

Keith Fitz-Gerald

When I started Total Wealth, I promised you that I would cover the best trading tips, tactics, and techniques for today's markets, including specific trading methods when headlines make the case for doing so.

Today, I'm going to keep that promise with a trade based on a recent story in Fortune that caught my attention: "Black Friday Weekend Will Deepen the Divide Between Retail's Winners and Losers."

We've talked about the retail "divide" in great depth many times both here in Total Wealth and in our paid sister-service, the Money Map Report, and I've characterized the ongoing battle as "Amazon versus everybody else." We also invested accordingly (and very successfully if you're following along as directed, I might add).

Today's trade, though, is about the "everybody else" in that phraseology. Not Amazon.

This is important stuff because the retail "divide" that makes this trade work is going to create fortunes for savvy investors who understand the dynamic and – sadly – wreck more than a few portfolios for those who don't.

Obviously, I want you to be amongst the fortune-builders.

Here's how to line up big profit potential even if the markets turn.

According to the National Retail Foundation, something on the order of 165 million to 170 million people will have hit the stores and/or shopped online between Thanksgiving Day and Cyber Monday.

Retail sales are expected to jump by 4%, but I think 5% might even be in the cards based on a strong economy and even stronger consumers. Shopify estimated prior to Thanksgiving that the average American shopper may spend $550, but I've seen estimates topping $1,000 as I type, late Cyber Monday evening.

Fortune's Phil Wahba makes the case quite clearly and eloquently in his story that not all this money will get spread around evenly. Wahba also notes specifically and, I think very accurately, that, "many big chains, particularly department stores coming off a string of weak quarters this year, can't afford to lose ground."

My sentiments exactly.

Retail stocks tend to be driven by long-cycle trends that do not change despite intense short-term interest, especially where holiday sales are concerned. It's simply unrealistic to expect strong retailers to fail any more than it is to expect weak retailers to turn around terrible results from the balance of the year when holiday shopping season rolls around.

Bluntly, if you're a retailer like JC Penney Company Inc. (NYSE: JCP) and your results suck coming into Christmas, they're not suddenly going to become a thing of beauty. In fact, they'll still probably suck.

That puts tremendous downward pressure on a company's stock price even in a rising market. Kohl's Corp. (NYSE: KSS), for instance, squeezed out a gain last quarter but is hanging on by a thread because the store is discounting everything heavily. JC Penney's transaction volume, a key measure of retail activity fell 19% last quarter according to Edison Trends over the same time frame, Wahba reported.

Meanwhile, the strong get stronger.

We've talked about that in terms of "tiers" with Amazon.com Inc. (NASDAQ: AMZN) at the top, followed closely by Walmart Inc. (NYSE: WMT) and Target Corp. (NYSE: TGT), both of which are keen to challenge Team Bezos on one-day shipping. That's no small feat considering that Amazon could well account for nearly 50% of all e-commerce this year.

That's also your entry.

[URGENT] The Time Bomb Set in the Heart of the Stock Market Could Erase Your Entire Nest Egg

We've got the "core" covered with Amazon itself, so it's time to selectively play the fringes using what's called a "pairs" trade.

We've talked about pairs trading in the past, using examples like Volkswagen AG (OTC: VWAGY) and Harley Davidson Inc. (NYSE: HOG), so I won't rehash the details today. Instead, I encourage you to take a quick spin through the Total Wealth Archives by clicking on each of those links to see how and why pairs trades can generate significant profits over time.

If your attention span is as challenged as mine is or you're otherwise disinclined to click, here's what you need to know:

Keith Fitz-Gerald

About the Author

Browse Keith's articles | View Keith's research services

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean, and he's also the founding editor of Straight Line Profits, a service devoted to revealing the "dark side" of Wall Street... In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

… Read full bio