This retail sector analysis article was contributed by Abigail Stevenson; it originally appeared on Mad Money.
After a hideous day on the market on Tuesday, Jim Cramer thought it would make sense to take a look at the sectors that bounced back the hardest after the last selloff.
That is why he decided to turn to the charts and take a closer look at retail, which has held up very well lately. And to strengthen Cramer’s case for retail, the technicals have been very strong, with money accumulating in major positions ahead of the next move higher. Mad money can be made in this segment.
For insight, Cramer spoke with Bob Lang, a technician who is the founder and senior strategist at ExplosiveOptions.net and a colleague of Cramer’s at RealMoney.com.
What caught Lang’s eye the most was that the retail ETF, called RTH, only dropped about 4 percent in last month’s big selloff, and has since rebounded like crazy.
“However, as much as Lang likes the retail group in general, he still thinks you need to be selective in order to pick the biggest winners,” the “Mad Money” host said.
Looking at the daily chart of the RTH, which is a collection of the largest retailers out there, Lang saw that its resistance level of $77 was tested about a week and a half ago when it gapped up above that price, making $77 the new floor of support.
Lang also noted that the Chaikin Money Flow indicator recently moved from negative and into positive territory. The last time this happened, the RTH jumped up 10 percent.
But within the retail sector there were a few stocks that Lang was impressed the most with when he looked at their charts. They were the well run, high-end plays such as Nordstrom, Restoration Hardware and Tiffany.
Starting with Nordstrom, Lang saw that it has been steadily making its way higher since June. Additionally, about a month ago, the short-term 50-day moving average crossed below its longer-term 200-day moving average, indicating the dreaded death cross pattern that often leads to a selloff.
However, what was interesting is that not only did Nordstrom not selloff, it roared higher!
Next up was Cramer-fave Restoration Hardware, which has been moving up in a straight line since May and hit a new level at $104 last Friday. Lang liked what he saw in the charts and thinks the stock could climb to $115 or even $120 soon.
The last stock Lang chose was Tiffany & Co, which shot up to $92 from $84 at the end of May. Since then it has traded sideways with a ceiling of resistance of $94. Lang believes it will be able to roar higher very shortly.
“Retail is exactly the kind of sector you want to cozy up to when the global economy is not doing so well and the price of oil has stumbled down to $50 a barrel, particularly high-end retail,” Cramer said.
Based on the charts, Lang thinks Nordstrom, Restoration Hardware and Tiffany could be hot retail tickets that are headed higher.
