Retail Looks Like a Short

Editor's note: This column by Doug Kass is a compilation of items from his trading diary; it is a special bonus for TheStreet.com and RealMoney readers. These items first appeared on Street Insight on Aug. 16. To sign up for Street Insight, where you can read Kass' commentary in real time, please click here.

Looking to Short RTH on Any Further Strength

8/16/2006 10:26 AM EDT

I am looking to reshort the Retail HOLDRs (RTH) on any further strength.

I would note that despite Abercrombie & Fitch's (ANF Quote) fine results, the retail index is down by almost 1% in a good tape. I retain my view that the consumer is spent up.

No positions in stocks mentioned

Back to the Retail Sector

8/16/2006 11:14 AM EDT

Three items in today's CPI release augur poorly for the consumer.

1. Taking the nominal CPI into account, average weekly earnings were down by 0.1% last month, and this number has now dropped in two of the last three months. This is particularly bad now as we enter the back-to-school season.
2. Single-family permits declined precipitously in July, making it seven months in a row of negative figures. That is the weakest reading in over 10 years and the 23% year-over-year decline is the worst in 15 years. Except for the mid-1960s, this sort of drop has always led to a recession.
3. The July Industrial Production report disappointed, with finished goods being particularly weak.

Shorts Are Squirming

8/16/2006 11:55 AM EDT

With the S&P 500 Index at such an important technical position (1290), the shorts are squirming. And the longs remain firmly in control, abetted by another day of bond market strength and improving momentum (following the mid-May fall).

I suppose the threat of a breakout above the technical resistance will prompt buy stops.

This morning I have shorted Applied Materials (AMAT), Danaher (DHR), Harley-Davidson (HOG) and more SPDRs (SPY) ... or as Grandma Koufax would say, "Dougie, you are a glutton for punishment?!"

Short AMAT, DHR, HOG, SPY