High End Off the Deep End: Saks (SKS)
by Houghton and Atkeson 09/05/08
Saks Inc. (SKS) caters to the high-end shopper. The stock has been virtually cut in half this year, so clearly high-end shoppers are feeling the pinch.
What is interesting about this situation is that option investors are placing sizable bets today that sales at Saks will continue to decline.
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We are seeing 10 times the normal volume of SKS options trading primarily in a SKS Feb 10-7.50 (SKSNB/SKSNU) bearish put spread.
With the stock trading at about $11 per share, these option investors will not make money until the stock falls well below $10 per share, given the way the put spread was constructed this morning.
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Looking into June, the market should begin refocusing on upcoming earnings reports for evidence the economy is gaining momentum.
Watching the Treasury's Actions
In the short-term, the government's bond auction is likely to be a key driver of stocks.
Treasury Auction Boosts Market
The Treasury's auction of two-year notes brought an upside surprise which should alleviate fears of a lack of demand for U.S. paper.
Credit Markets Point to Upturn
The credit market, a reliable indicator of equity direction, suggests we will break out of the SPX's trading range to the upside.
The market seems to be saying that a 30% move up from the lows is ahead of the real economy and the market needs to allow the economy to catch up.
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