‘I draw your attention to the curious incident of the dog in the night-time.’
So goes one of the most famous scenes in Sherlock Holmes.
The Inspector replies to the great detective, ‘The dog did nothing in the night-time.’
Holmes replies:
‘That was the curious incident!’
Sometimes it’s what doesn’t happen, rather than what does, that matters.
Case in point: retailer City Chic is not selling as much as it positioned for.
Now it’s stuck with too much inventory and has to discount to shift what it can.
The stock got hammered on Friday after the company told the market a more detailed version of the above.
Why does this stick out like the silent dog in the nighttime?
Because most other retailers are reporting cracking results!
Just in the last few weeks, I’ve seen positive updates from Myer Holdings [ASX:MYR], Accent Group [ASX:AX1], Cettire [ASX:CTT], and Super Retail Group [ASX:SUL].
They’re cashing in on the surprising strength in consumer spending.
The Australian Financial Review reports that the Black Friday shopping extravaganza is on track to set a record.
I did my bit and ordered a Nintendo Switch for the seven-year-old.
The point around this is that it’s not some airy-fairy observation.
There are tradeable moves that spring from this!
Cettire, for one, rallied 189% from early October to mid-November.
Stone the crows!
Why so dramatic?
A major part is that the market became way too bearish about the future economy when it collapsed back in June. That set terrible expectations about future results.
Now those results are coming out…and are much ‘less bad’ than assumed. Shares rally when this happens.
Hello! There are stocks still all over the floor. The ASX 200 has indeed rallied up in recent trading.
But this is being dragged up by the current strength in iron ore miners and big banks (another indicator that things aren’t that bad).
A lot of the stocks lower down in market cap are still super cheap, relative to where they were last year.
All I can do is urge you to start kicking over ideas and opportunities while this remains the case. I put five ideas in this report to get you started!
Here’s a bit more motivation for you…
Check out the weekend front page of the Australian Financial Review below:
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| Source: AFR |
Market experience tells me when a sentiment appears in the mainstream press like this, our instinct should be to go the other way.
Yes, I’m suggesting the contrarian position right now is to be bullish.
I’m not saying I can predict where the market goes any better than you can, but being overly negative is unlikely to lead to material profit.
Case in point: I put $20,000 into a UK bank called Virgin Money [ASX:VUK] not last week but the week before. I told a friend it wasn’t a trade, but I thought there was good value there.
I chanced my arm a bit. I knew Virgin Money’s update was due in November.
It delivered. They announced a fresh buyback and some nice metrics.
Nobody was more surprised than me when it rallied about 20% last week.
Now, think about that, it was only a month and a bit back that the UK pension system was in a tizzy because of rising rates.
Then the PM that lasted less time than a lettuce got the flick. You wouldn’t think a British bank would be all that hot, would you?
But you can’t forget what came previously — that bank stocks had been flogged. All we needed was news to be ‘less bad’ to get some upside.
Here’s the current gain right there from my broking account:
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Where does it go from here?
I’m not sure there’ll be much left in this immediate move.
The news wasn’t that exciting. But long term, I like it. I’m still not sure if I’ll cash it in or hang about.
Not a bad problem to have!
There are potential opportunities like this all over the place. I’m already excited for the next recommendation I’m brewing up for readers of my Australian Small-Cap Investigator advisory service.
And as the retailer I mentioned above, Cettire, also shows, you don’t even need to hang around for the long haul.
You could have doubled your money in about a month (I missed that one).
I tell you, some of these ‘reratings’ can zing up in a flash.
Again, here are another five ideas for you to consider right now.
Is it risk-free? No way!
I’ve taken hits lately from trades in QBE and a REIT that got to me (in fact, I can’t remember which one it was — an indication that I deserved the hit I got).
But overall, I’m grinding ahead.
Don’t let the mainstream keep you scared witless. It’s a market of stocks more than anything else. Some go down, some up, and some sideways.
I’m not sure the retailers will keep running. Consumer spending could indeed be dicey in 2023.
But I’ve got another sector I think is going to rumble very soon…
Get amongst the action…and who knows? Maybe Christmas is a bit more fun this year.
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
