Chris Johnson

The Pick of the Retail Litter

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Same-store retail sales for October are flowing in this morning. And to no one's surprise, really, the numbers stink. But analysts didn't expect them to smell this putrid.

Target (TGT) was down 4.8% (analysts expected -2.8%), Abercrombie & Fitch (ANF) was down 20% (-14.4% expected), American Eagle Outfitters (AEO) was down 12% (-8% expected), Dillard's (DDS) was down 8% (but analysts looked for a 13% decline -- way to go, Dillards!), and so on and so on.

The big exception was, once again, Wal-Mart (WMT), which just keeps chugging along. Sales were up 2.4% compared to the expected 1.6%. Furthermore, the largest retailer in the world expects November to be in the black with gains of 1% to 3%.

It's no secret we love WMT. Politics and union griping aside, the company knows how to sell a lot of stuff on the cheap and make money doing it. You can't have a better business model than that these days.

We recently noted that WMT is the only Dow (INDU) stock with positive returns in 2008, and it has remained above its key 10-month moving average. Today, though, we'll throw in a chart that shows the stock may have a bit of technical headwind. The 50-day moving average rejected the shares on Tuesday and then the stock was hammered Wednesday and Thursday, along with everyone else.

Adding to the resistance is peak November call open interest at the $57.50 strike (the 50-day sits at $57.31). What does that mean? No strike has more calls open than the $57.50 (with about 23,000). Heavy call open interest can add to resistance, so the shares could struggle to break through.

WMT reports earnings next week, and should do well, especially compared to the rest of the retail wasteland. And sentiment among options players is surprisingly negative. In fact, WMT's put/call ratio is nearing peaks seen in April, May and September. Look for earnings to combine with unwinding pessimism to launch WMT above the temporary resistance.