As the Katrina bounce rolls on, I've identified a sector that seems poised to decline as consumers wallets get pinched by inflation and high energy prices. I am particularly interested in shorting the Retail Sector.
The best way to short the sector is to use Exchanged Traded Funds like the Consumer Descretionary Sector Fund (XLY). I do not know how long the party will last, but dollar cost averaging into this short position makes lots of sense.
There is a lot insanity and euphoria among the retailers. In fact, I have not seen such obscene spending habits since the 1970's. Get this, last year Abercrombie & Fitch (ANF), was selling blue jeans at prices ranging from $60 to $70 a pair. This year they are fetching between $70 to a $120 a pair. Unbelievable!
American Eagle Outfitters (AEOS) have also raised their prices from $60 to $70 a pair to $70 and $120 a pair. The more money than sense crowd is not effected by economic downturns, and these showboats are paying $1,000 for a designer pair of women's jeans.
Since most consumers are average income earners, I have got to believe their wallets are being pinched as we speak.
I am adding the XLY to the IA portfolio as a short sale. My goal is to complete the position with 300 shares, but for now I am adding 100.
Exxon (XOM +1.61, PT $72), Schlumberger (SLB +1.98, PT $100), and Chevron (CVX +1.74, PT $70) are all performing nicely.
