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Wal-Mart higher after earnings

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Shares of Dow component and discount retailing giant Wal-Mart (NYSE:WMT) $50.20 +3.69% are higher today after reporting earnings $0.46 per share, which beat Multex consensus estimates by 1-cent a share and slightly above guidance given August 8th for EPS of $0.44-$0.45. The company said revenues rose 13.1% compared to year-ago-revenues to $59.69 billion versus the $60.22 billion consensus. Net income for the recent quarter was $2.038 billion, up from $1.622 billion for the similar prior year quarter.

Other retailers that reported earnings this morning have discounter TJX Company (NYSE:TJX) $18.49 +2.72% trading higher after reporting EPS of $0.24, which beat estimates by a penny. JC Penny (NYSE:JCP) $16.81 +0.35% is edging higher after reporting a narrower loss of $-0.05 per share, versus consensus for a loss of $-0.10 a share.

This has the broader Retail HOLDRS (AMEX:RTH) 76.54 +3.20% trading higher as Wal-Mart (WMT) carries a 36% weighting in the Retail HOLDRS (RTH), while TJX carries a 10% weighting. JC Penny (JCP) is not a component of the Retail HOLDRS.

Retail HOLDRS Components - Portfolio from 12/31/01 close

This morning's retail sales number excluding autos grow a modest 0.2% in July, but a slightly better than expected earnings report from sector bellwether Wal-Mart (WMT) has given a boost to many of the retailers today. As a whole, the Retail HOLDRS (RTH) have declined approximately 20% from their December 31st close as depicted by the "P/L %" column. After being hammered lower in recent session, shares of Best Buy (NYSE:BBY) lead today's retailing sector gains.

Retail HOLDRS Chart - $1 and $2 box

Economists have been concerned that a weakening consumer that has up until now been holding strong, could send the economy toward a "double-dip recession" should confidence falter. Each month, retail sales are released that exclude automotive sales as discounts and dealer incentives in that sector can skew retail sales data as it relates to the "pulse" of the economy. I like to use the Retail HOLDRS (AMEX:RTH) as one way to keep a "technical" eye on what the MARKET thinks of the consumer. Currently, I'd need to see a "buy signal" given at $77 to begin thinking broader bullishness exists in the sector. In recent weeks we identified shares of Wal-Mart (WMT) as a "key stock" that might lead the sector higher. While its been a slow move higher, shares of WMT have given a couple of "buy signals" on its point and figure chart, first at $49 and another today at $50. Each buy signal in Wal-Mart has been followed by a 3-box reversal, hinting any recovery in retailing will be slow and perhaps indicative of the consumer and the broader economy.

Jeff Bailey
Senior Market Technician
Option Investor

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