The recent poor market action hasn't scared away the dip buyers. They jumped on the gap down open and had the S&P 500 in positive territory quite quickly. The Nasdaq managed the strongest bounce this morning as technology stocks are seeing some bargain hunting. The DJIA stocks, that led yesterday, are mixed today.
Overall breadth is still negative with about 3000 gainers to 3550 decliners but what is more interesting is that new 12-month lows are now about twice the number of new 12-month highs. That is a clear indication that momentum has fallen sharply and that there aren't many places to hide at the moment.
One group that is looking good is select retail. Probably the biggest unreported story is the surge in economic optimism. That is readily apparent in may retail stocks. One of the best illustrations today is Five Below (FIVE) which is up 16% following the second blow-out quarter in a row.
FIVE is a low-priced discount store that has differentiated itself for other dollar stores by focusing primarily on children, teens and pre-teens. Management has also done a great job of managing expectations which has allowed for upside surprises that has caught the market by surprise.
In the quarter reported last night FIVE beat expectations by 4 cents. Revenues were up 23% year over year and same store comparisons were up 2.7% versus flat guidance previously. The stock is now selling with a trailing P/E of about 54 and is expected to grow earnings 37% in the FYE January 2019, and 21% the year after but market players are obviously looking for those estimates to come up.
While the valuation becomes much less attractive after a jump of $20 in the stock today, the company obviously has operational momentum as well as stock price momentum but it may need some consolidation at this point.
Last quarter the stock had a very similar gap-up on strong earnings. It then traded in a range for about six weeks before it began trending up into last nights report. Market players were anticipating another good quarter and were correct but this move today may be too much, too fast and I expect the stock to act much like it did after the last quarter.
I'm keeping FIVE on the radar but will look for entry after it consolidates a bit.