On Wednesday, Fed Chairman Jerome Powell made clear what many had suspected for some time. "It makes sense to moderate the pace of our rate hikes," Powell said. Traders celebrated as the Federal Open Market Committee (FOMC) now is likely to raise rates by just 50 basis points at its Dec. 13-14 meeting.
We've been saying for some time that the Fed must change its pace, and voting members already have indicated that moderation was on the table. According to the minutes of the November FOMC meeting, "a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate".
Despite this foreshadowing, markets took off on Wednesday, with the S&P 500 rallying 3.09% and Nasdaq Composite gaining 4.41%.
Retail had a solid day, with the SPDR S&P Retail ETF (XRT) climbing above its 200-day moving average (red) for the first time this year. The benchmark retail ETF closed at a three-month high on strong volume.
Helping to bolster the retail sector were reports that Black Friday sales came in above expectations. According to the National Retail Federation, 196.7 million shoppers searched for deals during the period from Black Friday through Cyber Monday. Analysts were expecting just 166.3 million shoppers this year, after last year's figure of 179 million.
We've been active in the retail sector lately. Last week, we revealed our best names in the retail sector, and this week, we added Home Depot (HD) and Lowe's (LOW) to that mix.
Today, the focus is on a familiar name in that sector, Five Below (FIVE) . After Wednesday's close, Five Below announced earnings of 29 cents per share, crushing expectations of just 14 cents per share. Revenue of $645.03 million trounced estimates of $611.43 million.
According to Joel Anderson, president and CEO of Five Below, "We delivered third-quarter results that were better than our guidance." As a result, shares of Five Below leaped 11.6% in after-hours trading; it has closed Wednesday at $160.86.
What's next for Five Below? According to the charts, the next challenge will be the April 20 close of $183 (green dotted line). Once that hurdle is cleared, the door is opened for Five Below to challenge its year-to-date closing high of $207 (black dotted line), set on Jan. 3.
Five Below is considered part of the low-price retail sector, but its product mix is unique. The retailer is growing rapidly, with 40 stores opened in the just-ended quarter.
Five Below is a core holding of our portfolio. We're leaving our long-term position untouched, but adding a short-term position in this stock for a trade. Our targets for this short-term position are $183 and $207, for the reasons indicated above.
