Welcome to the Holiday Season – Retail Edition

The holiday season is going to be off the charts this year.

And I’m taking a hard look at the retailers as a result.

Post-earnings, these are the top three retail stocks I’m watching:

  1. Target Corp. (NYSE:TGT)

Target got smoked on earnings yesterday – and I don’t think it deserved it.

Look – the retailer had great earnings and great margins. They simply said that they plan to spend more money to make sure they have enough inventory for Christmas. Yet, shares shed almost 5% over the course of the day.

When a stock gets bashed like this over something so small, that’s an opportunity to jump in.

  1. Ulta Beauty Inc. (Nasdaq:ULTA)

Last year, there weren’t any holiday parties – company or family. That means this year will be bigger than ever for makeup companies like ULTA. And this week, the stock broke $400 a share for the first time since mid-October.

From here, it’s only going higher – especially as we head into the “official” holiday season.

  1. Best Buy Co Inc. (NYSE:BBY)

BBY blew the door off its last earnings report, beating EPS and revenue expectations. The electronics retailer is scheduled to report again next week on the 23rd, and I wouldn’t be surprised to see another shot higher for BBY.

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Watch the S&P on New Year’s Eve

Red Traffic LightVolatility came off at the end of last week, but we saw a much stronger day yesterday.

After closing just above 4,700 on Tuesday, yesterday the S&P closed at 4,688, unable to hold the ceiling that 4,700 has become.

And just as expected, the VIX rose as the S&P fell, ending the day above 17.

I’m interested to see how volatility behaves through the end of the week.

My short-term light is still red here…

Forget the 4,700 ceiling – I think the S&P will break it before year end.

In fact, by New Year’s Eve, I predict we’ll see the S&P above 5,000.

Now, by the end of Q1, we could see an ugly sell-off. But before anything like that can happen, vol needs to fall off first.

Introducing the Call One-by-Two

Ever heard of a call one-by-two?

Well, if not, you’re about to – because that’s exactly what we’re seeing in Baidu Inc. (Nasdaq:BIDU) today, to the tune of 30,000 contracts:

This trader bought the December $175 calls, paying $3.45 per contract. Against that, they sold 10,000 of the December $195 calls twice, once for 83 cents, and once for 82 cents.

In total, they paid about $1.80 for the BIDU December $175-$195 call one-by-two.

What does this mean?

Well, this trader wants BIDU to move above $175 and then slowly make a run at $195. In a perfect world, BIDU would close at $195 on December 17. But if it doesn’t, this trader still makes money.

In fact, I think they’re really just selling a bunch of the 195s to offset the cost of their 175s – a bullish trade betting that BIDU will rally and move above $175 by December expiration. They did it as a one-by-two because they don’t think it’s going to the moon

But they do expect a reversal.

And so do I.

I’d be lying if I said I wasn’t nervous about Chinese companies. I just can’t trust that the Chinese government won’t suddenly put a company like BIDU out of business.

That said, BIDU is a strong company that got crushed on earnings. And I wouldn’t be surprised to see a dead cat bounce between now and December – I mean, we’ve got a lot of time here.

The December $170 calls are about $2.50 as a great way to play this thing to pop.

I’ll be live tomorrow morning at 10AM on Money Morning LIVE to end the week. Click here to add it to your calendar!

Mark Sebastian
Founder, Profit Takeover


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