Retail Gets an Odd Rally From Lower Oil

Nothing was more in the face of people last week than the astounding run in retail, even though it looks like we are going into, not out of, a recession.

Typically we have to avoid early-cycle stocks this early. In fact, every early-cycle run we have had, including the brutal headfake at the end of April, had to be sold. During this period, only Wal-Mart (WMT - commentary - Cramer's Take), BJ's (BJ - commentary - Cramer's Take), TJX (TJX - commentary - Cramer's Take), Urban Outfitters (URBN - commentary - Cramer's Take) and Big Lots (BIG - commentary - Cramer's Take) have really shined, with Family Dollar (FDO - commentary - Cramer's Take) and Dollar Tree (DLTR - commentary - Cramer's Take) making solid moves upward.

Now we are at the crossroads again. There is no doubt in anyone's mind -- except perhaps those minds in the Treasury and the endless optimists at all ends of the Cerberus empire -- that things have really ticked down and the end of the stimulus package is upon us. (Thanks, Wal-Mart, for that little bit of sunshine last week.)

So what's really happening? I think that the unwind of the commodity pressure -- mainly oil, which is mounting one more pathetic attempt to rally, and natural gas, which isn't even bothering to try -- is making people feel that the back-to-school season can't be that bad and that things are getting better.

Is oil down big enough? The smartest guys I know are shorting right into the teeth of this retail rally, saying the numbers have to be horrible. I don't think anyone disagrees.

Plus, the housing decline remains indeterminable, even though any chartist can see that the homebuilders are among the best in the book, usually predicting a turn in six months of that group's dismal fortunes.

I believe that what's causing the retail rally is a combination "worst is over" feeling and a pump price decline, emboldening people to think that we are going to continue to spend, rather than stop spending, which is what the stocks were reflecting until the rally.

Still, I think the safe thing to do is to avoid this group with the exception of what's been knocked down. That's why I bought Wal-Mart and Costco (COST - commentary - Cramer's Take) last week, because they do not reflect the optimism that suffused most of the not-so-hot retailers.

I still regard this group as the toughest of the tough other than the autos, although their balance sheets certainly look a lot better. I believe that in the panoply of what can be bought -- health care, tech, financials, consumer nondurables -- this group makes for the toughest longs. But in the end, I can't find enough of a reason, for example, to buy Lowe's (LOW - commentary - Cramer's Take) and Home Depot (HD - commentary - Cramer's Take) even though, again, they look and act great, including today's action. It is hard for me to buy JCPenney (JCP - commentary - Cramer's Take) now that it has rallied 18% in one week, and the continued buying in Kohl's (KSS - commentary - Cramer's Take) is pretty amazing. Same with Amazon (AMZN - commentary - Cramer's Take). I can understand Costco, because it has already taken the risk out and then got oversold.

Now, there is one last wildcard that could justify this run -- a radical decline in oil that could take it to the mid-$70s, where the oil stocks are forecasting. Then we will all wish that we bought these stocks here, and we also will be closer to a turn in housing as the months tick on, courtesy of household formation and a dramatic decline in the number of homes built.

Maybe the best way to put it is that the time to be negative is over, the time to be neutral is at last upon us.

At the time of publication, Cramer was long Wal-Mart and Costco.

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