This sector is not dead yet, at least....

“during this seasonal period!” This is how I want to finish the title sentence.

 What was the biggest news in the past week in the business circle? You may think of something else but I would say the filing of bankruptcy for Sears, the 125-year-old retailing giant whose revenue once totaled as much as 1% of America's GDP.  At its peak, Sears boasted 900 stores, 200,000 employees, and revenue of $31 billion. The Sears catalog was once known as the “Wish Book” or “Big Dream Book.”, sent to 20% of all the American population. It could run as long as 1,500 pages with more than 100,000 items for sale. In its bankruptcy filing, Sears valued itself at just $6.9 billion in assets with $11 billion in liabilities. In the past 5 years or so, it has been subjected to an ignominious, slow death, culminating in this bankruptcy. This is the second major bankruptcy by the American icons within 2 years; the other one was the famousToys R Us. But don’t count them as the only two. More, and a lot more will be coming in the years ahead due to humongous debt burdens on corporations in general and many of them will eventually blow up with increasing interests that will last for long and accelerate in the coming years. The next one may likely include Bed Bath & Beyond that I have also talked about before. I’m sure we will talk a lot more about this depressing trend in the next few years.

There are many reasons that are not conducive to the retailing business, especially those relying on brick and mortar retailers. But the most attributable culprit is definitely the surging online giant, Amazon! While the long term trend for this sector is by all means very depressing, don’t just be too bearish for the nearer term. It has definitely not yet dead, especially in this season. You see, we are coming into the year end for the most important shopping season, Christmas. In general, this is the best season for retailers all sizes and types. This year may be particularly strong due to a strong economy not seen in a decade as well as more income for general Americans (salary increases and/or tax reduction). So the vast majority of shoppers should feel pretty good and will likely spend more than usual in the couple of few months. In addition to this seasonally strong period, the last week 6% market crash has actually created a great buying opportunity. Retail is among the worst sectors during the crash and has dropped about 10% in the past two weeks. But again based on historical data, whenever such a drastic decline occurs for the retail sector, a substantial rebound will follow soon and I think this bounce may be even bigger this time due to the seasonal strength. If you believe what I’m saying, then buying XLY for this sector is an easy way to ride the trend. One caution though, as for the general market, we may see some extreme volatility again in the next couple of weeks. If so, XLY may also come down to retest its recent low as well. But it will be a great time to buy at its weakness.