That's One BIG Move

 | Feb 03, 2012 | 12:00 PM EST  | Comments
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Stock quotes in this article:

dg

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psa

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exr

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big

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fred

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What would you call a portfolio increasingly weighted toward unglamorous consumer stocks that are built for tough economic times? The Stocks of Hard Knocks? The Portfolio of Pain? The Tough Times Don't Last but Tough People Do Index?

I've been extolling the virtues of Dollar General (DG), Public Storage (PSA) and Extra Space Storage (EXR) for some time now, as all three are positioned to thrive in the current economic environment of stagnant real wages. Yesterday, Public Storage and Extra Sapce reached their all-time closing highs, and Dollar General reached its all-time intraday high before pulling back.

It was only Monday when I mentioned two new additions to this burgeoning list of companies that seem well positioned to benefit from consumers' need to get more for their money -- Big Lots (BIG) and Fred's (FRED). Yesterday, Big Lots shares jumped 8.27% on nearly triple their average volume to reach a seven-month high after the company reported sharply higher sales and raised its earnings outlook. Big Lots CEO Steve Fishman attributed the gains to a shift away from toys and toward consumer electronics, a move to which customers have responded enthusiastically.

Big Lots (BIG) -- Daily
Source: TradeStation

If you're long Big Lots, now would be a good time to take something off of the table. Thursday's huge gap-and-go pushed shares very close to the next major resistance level, at $44. If that gap (shaded yellow) were to fill, the stock would have to give back all of yesterday's gains. While I don't believe that will happen, this stock needs to consolidate yesterday's big move before it can resume its march higher.

As for Fred's, a Memphis-based discount retailer, the stock is still in a rising channel and is trading less than $1 below its three-year high. Fred's won't report earnings until mid-March, but word of mixed news came Thursday. January's 3% increase in overall sales was tempered by a decline in same-store comps, which fell 0.8% vs. last year. Despite this, Fred's stock was a trooper, gaining 1.33% on slightly above-average volume.

Fred's (FRED) -- Daily
Source: TradeStation

I can't ever recall having been long such a collection of motley stocks before, but I believe it makes sense. We have a strong stock market despite the current weak economy, but that may be about to change. The S&P 500 E-mini futures are continuing their march toward 1350. Is the market trying to tell us that better times are on the way?

Friday morning's jobs report seems to say yes. 243,000 jobs were created in January, beating the consensus estimates by about 100,000 -- and, unlike several recent nonfarm payroll reports, this number appears, on first glance, to be clean. At least that's what the reaction of the S&P E-minis is telling us on the five minute chart.

S&P E-Mini Futures -- 5-Minute
Source: TradeStation

If today's jobs report is not an outlier, the game may be changing. I'll stick with my motley group of hard-knocks stocks for now, but you can bet I'll be keeping a close eye to see if a real, lasting recovery is about to take hold. But will consumers go back to their old haunts and desert our rough-and-tumble portfolio? That's the biggest question on my mind right now.

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