Turnaround Tuesday: The Bulls Storm Back

We finally located the dip buyers…

The Dow Jones Industrial Average closed the Tuesday trading session higher by more than 500 points to post its best day since March.

But the beaten-down tech stocks stole the show, helping to power the Nasdaq Composite to a one-day gain approaching 3%. Following a wild week, traders were treated to a bounce that might stick.

While the market still has plenty of damage to repair following the abrupt correction, we have an opportunity to use this relief rally to scan the market for tradable bounces that have the potential to net quick, double-digit gains.

Let’s get started.

First, rumblings from the retail sector are making fresh headlines this morning.

Sears Holdings Corp. (NYSE:SHLD) surprised no one when the company filed for Chapter 11 bankruptcy on Monday. The beleaguered retailer has hiked the long road to irrelevance for the better part of the past decade.

The company now must face a painful reorganization process, beginning with the closure of more than 140 unprofitable Sears and Kmart locations, Reuters reports.

The saga continued Tuesday as Sears shares jumped triple-digits after grabbing a $300 million loan to keep the lights on during bankruptcy. But the dead cat bounce wouldn’t stick. The stock gave back most of its gains by the closing bell.

Sears’ painful decline has given retail bears plenty to chew on. After all, the SPDR S&P Retail ETF (NYSE:XRT) has lost as much as 8.5% so far this month as the sector abruptly retreated from its highs.

XRT

Remember, brick and mortar retail has been one of this year’s surprisingly strong sectors. We’ve raked in trading gains from resurgent department stores, extreme discounters, and niche retailers over the past year as the sector has defied gravity in the Age of Amazon.

While XRT has taken its lumps this month, the big retail ETF is hiding some surprisingly strong trends. When the strongest retail names continue to shine as the market corrects, we should pay close attention…

Walmart (NYSE:WMT) is reportedly saving millions by… changing its lightbulbs?

CNBC reports that the company is saving a staggering $200 million by switching out fluorescent bulbs with LEDs in all its stores and parking lots.

That’s a cute story — and I’m glad the biggest brick and mortar discounter in the nation knows how to pinch pennies. But I’m much more interested in Walmart’s chart right now. Despite a broad market correction, shares are up more than 2% on the month.

WMT

Walmart has consolidated nicely following its big gap higher in August. This week’s bounce could trigger a move back to $100 on the way to new all-time highs.

Retailers aren’t the only stocks pushing higher. In fact, the first stocks to drag us into the correction are now leading the market comeback.

We showed you how the small-cap Russell 2000 finally began to bounce from severely oversold levels to begin the trading week. Yesterday, we learned that Monday’s modest bounce lit the fuse of a powerful snapback rally. The Russell powered higher Tuesday, matching the Nasdaq’s strength with a gain of almost 3%.

RUT

Of course, the Russell isn’t out of the weeds just yet. It now has some new resistance to contend with after its big drop. How it reacts to these levels will tell us a lot about this week’s rally.

Meanwhile, another battered stock looks ready to erase some of its losses.

Yesterday, we asked if Netflix Inc. (NASDAQ:NFLX) could hold the line heading into earnings. Today, it looks poised to jump by as much as 10% at the opening bell after announcing subscriber growth that easily topped analyst estimates.

Netflix and Facebook were the worst performing FANG stocks by a mile this summer. We’ll probably hear a huge sigh of relief if the bulls follow-through with their after-hours buying spree this morning…

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Rude Awakening PRO and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing for 13 years. In 2018, Greg’s Rude Awakening PRO portfolio beat the S&P 500 by 14%.

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