Why I’m Betting Target Is Next To Fall

Walmart (WMT) went from up 20% this year to down about 7%.

Costco (COST) was up 30% on the year, and now it’s up about 6%. Nike (NKE) just traded at its lowest price in more than a decade, and McDonald’s (MCD) is sitting in bear market territory.

Nobody’s talking about it, but the retailers are getting systematically dismantled. And I think Target (TGT) is next in line.

Why Stocks Rallied On A 29,000-Job Dud

Friday’s jobs report was a dud. The economy added just 29,000 jobs in September, and unemployment rose to 4.2%.

Wall Street was looking for around 90,000. The analysts who look at jobs reports couldn’t hit the broad side of a barn.

The S&Ps rallied anyway, because crappy jobs mean maybe the Fed doesn’t have to hike again. But look at where the rally came from. Nvidia (NVDA) was up almost 3%, and the semiconductors carried the whole thing, while just about every other sector faded as the day went on.

So don’t overread the bounce. It took the S&Ps right back to unchanged on the week. Underneath, the same names are still getting hit, and the retailers are near the top of that list.

The 55% Winner I’m Betting Against

Target is the outlier. It’s up about 55% this year, while Walmart, Costco and the rest of the group get taken apart one by one.

I don’t think that lasts, so I’m betting on a slide. I’m buying an out-of-the-money put spread on Target about 77 days out, around the 30 delta, $10 wide, for a debit of about $2.77.

If you’ve never traded one, a put spread means buying one put and selling a cheaper put at a lower strike against it. It caps what you can make, but it also caps what you can lose.

My risk is the $2.77 I paid, or $277 per spread. A $10-wide spread can be worth up to $10, so the most I can make is about $7.23, or $723 per spread, roughly 2.6 times what I’m risking.

For good profitability, Target has to get down to around $140. Is that plausible in the next 77 days? Sure.

When you buy out-of-the-money spreads, you’re swinging for home runs, and there’s a lot of striking out when you swing for home runs. So trade small and keep it under control.

Why I Just Bought Nike At A Decade Low

On the same morning, I started nibbling on the retailers that have already been beaten up.

I bought 200 shares of Nike in my IRA, and I’m looking at McDonald’s next. I fully expect to hold that Nike position for a long time.

So I’m betting against the one retailer that’s still flying, while slowly buying the ones that have already been crushed.