Insider Action Flags Retail Paired Trade

Back to Krevlin: He was also among the insiders whose buys guided me to that recent, profitable trade in RedEnvelope, a trade that I would have done even better with if I had held on longer. This time, he seems to be betting that Restoration can post EPS in the upper end of the expected range for next fiscal year (ending January 2007). From the 8 cents expected this fiscal year, analysts expect the bottom line to increase to between 17 cents and 45 cents. These estimates reflect the wide range of sentiment surrounding this and other retailers. Restoration would need earnings in the upper portion of the estimate range to justify buying now for fundamental reasons, and that expectation is what I read into the recent bullish insider sentiment.

Besides the insider activity, another interesting contrast between Restoration Hardware and Saks is the short-term technical strength of both. Restoration looks as strong in the short-term as Saks looks weak. If Restoration can break through the 200-day moving average it is now butting its head against, this paired trade should be profitable even if Saks recovers a bit.

---

Please note that due to factors including low market capitalization and/or insufficient public float, we consider RedEnvelope, Tweeter and Restoration Hardware to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
It's always been my opinion that it pays to have more -- not fewer -- expert market views and analyses when you're making investing or trading decisions. That's why I recommend you take advantage of our free trial offer to TheStreet.com RealMoney premium Web site, where you'll get in-depth commentary and money-making strategies from over 50 Wall Street pros, including Jim Cramer. Take my advice -- try it now.