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Hey Mikey... he likes it!

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One of my favorite commercials on TV growing up was a freckle- faced kid named "Mikey" sitting in front of a bowl of cereal with a grumpy look on his face. His brother and sister stuck a bowl of cereal in front of his round, plump face, knowing deep in their hearts that Mikey wouldn't touch the stuff as he hated most healthy foods. The finicky freckle-faced kid took a bite of the cereal, smiled, then started scooping his cheeks full like a hamster at dinner time. His brother exclaimed... "Hey Mikey.... he likes it!" Then the brother and sister scrambled for the box of cereal and start filling their bowls.

That what looks to be taking place with shares of Michael's Stores (NYSE:MIK) $43.19 +12.18% today after the craft retailer posted better than expected earnings last night. Yesterda, MIK reported Q1 earnings of $0.29 a share, $0.09 better than consensus and 163% above year-ago earnings of $0.11 a share. The company said sales increased 15% to $603.2 million, which was above consensus estimates. The company added that it saw May same-store sales increasing 6% "at the very high end of our previous guidance."

In last night's market monitor, I thought bulls should keep an eye on the stock today and look for a trade in coming sessions at the $43 level. I didn't think today would be the day, but the stock did trigger $43 and I'm profiling the stock as bullish here today.

Michael's Stores Chart - $1 box

Yesterday's trade at $38 was a double-bottom sell signal, but last night I thought that may have well been achieved due to the current market conditions that may have had some jittery bulls protecting some handsome gains ahead of earnings. Nothing wrong with that as the stock made a nice move higher. However, earnings were very strong and easily beat estimates.

I don't necessarily think that MIK necessarily has a grasp of how strong their business is either. On May 9th, MIK said April comps rose 13% and then guided analysts higher on Q1 earnings (reported last night) to $0.20 a share. While analysts underestimated earnings for Q1, so did the company. That could be good for the stock over the next couple of quarters and should see some analysts bolster their earnings projections in the months to come. Perhaps the market has already accounted for some of this as the past bullish vertical count and currently developing bullish counts are quite a bit higher than current levels.

Today's bullishness has helped bolster the retailers as the Retail HOLDRS (AMEX:RTH) $95.58 +2.41% leads today's sector gainers.

Jeff Bailey
Senior Market Technician
Option Investor

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