Chris Johnson and Jon Lewis

Is Retail a Buy?

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WMT's daily chart shows the stock can't gain any traction, trading mostly between $50 and $52 for the past three months.  Stay away, unless you like selling option premium.

With the 800-lb. gorilla out of the way, we like Kohl's (KSS) as a bullish play.

The stock has mimicked XRT by pulling back to its 50-day, which makes for an excellent entry point for a long position. A return to $60 is very possible, especially with a decent earnings report.  

You should note, however, that $60 could be a problem. That's where the shares stalled throughout most of October. It's also the site of heavy November call open interest, which could add some resistance.

That said, a burst through $60 on solid earnings could propel the shares to substantial gains.

KSS reports on Nov. 12, with analysts expecting 57 cents, a modest 10% increase from a year ago. But the "whisper number" is 55 cents, a sign of some skepticism that we like to see for bullish plays. Lowered expectations are easier to overcome. 

Given that KSS has beaten the earnings estimate for 17 straight quarters, we like the odds for the streak to continue.

Our expectations for KSS are modest for now -- an increase of 5%-7% to the October top around the $60 level. But a solid earnings report could boost the shares beyond this resistance. That would make KSS a highflier among its retail brethren.  

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