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Retail Effect

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One of the unknown factors going forward is how the consumer will respond, and thus how retail stocks will respond. A recent report from Prudential Securities stated that retail sales fell 6% at the height of the Gulf War.

U.S. retailers reported a drop in sales last week as consumers were glued to their TVs, but sales returned to normal over the weekend. The coming weeks should be crucial for retail stocks.

Wal-Mart Stores Daily Chart

Theoretically discount retailers should hold up better than specialty retailers, but Wal-Mart (WMT) stock hasn't been performing well lately. Before Tuesday's attacks WMT lost support at $46.70 and was trying to hold onto $45. Yesterday's drop pushed the stock below that support level, but Wal-Mart has rebounded nicely today, up 4.50%. Wal-Mart might have trouble higher, starting with resistance at $46.70, even if sales do hold up better than its counterparts.

Best Buy Daily Chart

Electronics retailers are a bit of a wild card. Consumer could go into a spending shell and not purchase that new 60" high definition TV. On the other hand they could divert vacation money to buy a new DVD or Microsoft Xbox for entertainment. That's what Best Buy (BBY), the nations largest electronics retailer, reported. Sales rose 31% in the second quarter, thanks to strong sales of DVDs, and the company expects third quarter earnings to come in as expected.

Investors aren't necessarily convinced. Yesterday the stock dropped $6, but BBY has managed to recoup $1.73 of that loss today. Being able to hold above the 200-dma would be a good start for Best Buy.

Home Depot Daily Chart

Home improvement stocks are also in question as spending on home improvement projects could slow. Home Depot (HD) was already in trouble when it lost support at $45 on September 6th. The stock dropped $5 in three days before finding support at $40. Yesterday the stock took another $5 drop before finding support at $30. Today the stock is trying to move higher, but should meet stiff resistance at $40.

Jeffrey Canavan
Assistant Analyst

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