MorningWord 10/21/15: – $KSS and Tell

by Dan October 21, 2015 9:29 am • Commentary

Walmart (WMT) had no shortage of reasons for last week’s poor earnings results and downgrade of forward guidance last week. Since the stock’s 8% one day decline on October 14th to new 52 week lows, it has not registered a single uptick.  Sadly, the stock has little technical support between $57 and $50:

WMT 5 yr chart from Bloomberg
WMT 5 yr chart from Bloomberg

Other mid to low end retailers have been down in sympathy since WMT’s warning, most notably Target (TGT) and Dollar General (DG).  While the news flow and price action in this segment of U.S. retail appears is disappointing, there was a chart in The Daily Shot, that can also be viewed on (yes it still exists), which highlighted Deutsche Bank’s chief international economist Torsten Slok’s view that in the U.S., “lower-income groups currently are as optimistic about the future as they were before the financial crisis with their mood close to an all-time high”:


The article goes on to quote Slok:

“Think about this statistic next time someone talks to you about the declining participation rate, the lack of wage growth, and QE4. This is not an economy that is about to enter recession,”

“In my view, there is a big disconnect between the current narrative in both equity and rates markets and the actual economic data,”

One data point leading into a seasonally strong retail period does not crush a growing market narrative, but definitely worth taking note.

While few U.S. retail stocks that depend on lower income consumers act well, one has acted like death and could incorporate any and all bad news. It could also be a coiled spring on the slightest bit of good news.  That stock is Kohl’s (KSS). They get 100% of their sales from the U.S., albeit sales that have been plus or minus a couple percent for the last three years. This year they’re expected to print the first earnings increase in that same time period.

KSS is down 24% on the year, and down 41% from its all time high made in April, a month when investors viewed U.S. consumer exposure (even lower end) as a massive positive due to lower gas costs at the pump.  The ten year chart of KSS shows what was a massive double top at $80, and what could be massive long term technical support in the mid to low $40s:

KSS 10 year chart from Bloomberg
KSS 10 year chart from Bloomberg

Check back in a bit, we will detail a couple ways to play for a bounce following KSS’s Q3 results on November 12th. Sentiment towards the stock feels horrid, with 11% short interest and Wall Street analysts having 11 Buy ratings, 12 Holds and 2 sells. A beat and raise could cause a sharp short squeeze.