Stock Quotes in this Article: GES, GIS, KFT, NKE, SLG

BALTIMORE (Stockpickr) -- It’s shaping up to be a big month for retailers.

With Black Friday just over a week away, retail companies are scrambling to get the upper hand on their competitors on the biggest shopping day of the year. In general, retail sales have been strong in 2011, and even though Black Friday sales numbers are projected to post only a modest increase, any surprise will go a long way in boosting sentiment for stocks with retail exposure.

As Wall Street’s focus starts turning to retail names this week, we’re doing the same with our list of technical trading setups worth watching right now.

 

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    For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.

    Here’s a look at five new technical setups with some sort of significant retail exposure that could deliver breakout gains to your portfolio this week.

    Guess?


    Let’s kick off with mid-cap apparel retailer Guess? (GES), one of the highest-yielding retail stocks. Guess designs and sells its clothing label through department stores and company-owned locations, giving the firm considerable retail exposure.

    While 2011 has been a difficult year for Guess shareholders (shares are down 34% this year), a potential reversal is pointing toward an upside opportunity right now.

    >>5 Rocket Stocks With Upside This Week

    That’s because Guess is currently forming an inverse head-and-shoulders setup right now, a formation that indicates exhaustion among sellers. The inverse head and shoulders is one of the most well-known patterns among would-be traders -- but don’t let that stop you from paying attention to it. A recent academic study found that the head and shoulders setup (and its inverse variation) could be both statistically and economically significant. The key to this trade is waiting for it to become a high probability setup.

    That happens when shares of Guess break out above their neckline, the price level that’s acted as a resistance level as this pattern progressed. For Guess, the neckline is at $35. A sustained push above that price level means that buyers have gained control of this stock.

    SL Green Realty


    A similar setup is shaping up in shares of SL Green Realty (SLG), a REIT that invests in office and retail properties in the New York metropolitan area. SLG’s unique portfolio and exposure to particularly high rent retail space makes it an interesting name right now -- but don’t buy this REIT for its income generation abilities; it pays just a 0.60% dividend yield.

    Instead, the inverse head and shoulders in this stock is a more attractive reason to be a buyer. Unlike the setup in GES, SLG’s neckline is slanted downward, and its shoulders aren’t symmetrical. Despite those factors, the trading implications are exactly the same for this REIT. We’re looking for a breakout above the (currently) $70 neckline before it becomes a high probability trade.

    When that happens, I’d recommend placing a protective stop just below the right shoulder at the 50-day moving average.

    As of the most recently reported period, SLG was one of the top holdings at Ken Heebner's Capital Growth Management, comprising 2% of the total portfolio.

    Kraft Foods


    While Kraft Foods (KFT) isn’t a retailer, as the largest consumer food and beverage company in North America, Kraft has significant retail presence. And right now, an “if/then trade” setup in shares is providing a solid breakout trade opportunity for investors.

    Put simply, an if/then trade happens when a stock is trading in a well-defined horizontal range. It’s a setup whose direction is contingent on the direction of the breakout from the range. So in Kraft’s case, if shares break out above resistance (just below $36), then it becomes a buy. If shares break down below support (at $32.50), then Kraft becomes a short candidate.

    Normally, if/then trades don’t have any directional bias when they’re in the channel. In Kraft’s case, though, 14-day RSI (a momentum indicator) is posting a positive divergence from price, hinting at upside bias. Since momentum is a leading indicator, that’s a good indication of a breakout to the upside, particularly with shares right under that resistance level right now.

    That doesn’t mean that it makes sense to buy Kraft right now -- wait for the breakout to $36 before taking a position in this stock.

    Kraft, one of TheStreet Ratings' top-rated food stocks, remains one of Warren Buffett's top stocks as of the most recent period.

    General Mills

    General Mills (GIS) is another food company that has massive retail exposure -- $10.25 billion annually to be precise. And right now, this stock is approaching a significant breakout level.

    $40 has acted as a price barrier to General Mills for the last several months, pushing shares lower on its most recent test of that price level in early October. In the real world, resistance levels like that $40 price in GIS occur when there’s a glut of supply of shares sitting above a set price. As buyers bid shares up to $40, their bids get completely absorbed by that excess of supply, and the stock reverses lower from that liquidation of increasingly eager sellers.

    >>5 Stocks Setting Up to Break Out

    But supply and demand are dynamic -- they change -- and a breakout above $40 tells us that buyers have overcome selling pressure at that price level, opening up room for shares to run higher. Clearly, then, we want to be buyers of GIS after shares have surmounted $40.

    General Mills, one of the top-yielding food and beverage stocks, is one of the top holdings of Mairs & Power.

    Nike


    Last up this week is Nike (NKE) a sports apparel manufacturer that sells its products through 50,000 retail accounts as well as nearly 100 company-owned retail locations. Nike is actually forming a setup similar to General Mills right now -- only this name is further along.

    Like GIS, shares of Nike have been locked in an uptrend since the Aug. 8 broad market bottom, and also like GIS, Nike had been approaching a staunch resistance level (in this case at $93). The key difference is the fact that Nike already broke out above that price level.

    But a throwback is providing a second chance to take a trade on Nike. A throwback happens when a stock returns to retest newfound support at its breakout level -- the fact that $93 held as a support level for Nike confirms the strength of the stock’s breakout. Because the breakout occurred within the channel, we’ve got a well defined upside target at trend line resistance. Consider buying while shares remain near support, and selling as they approach that resistance level.

    If you decide to take this trade, I’d suggest keeping a protective stop just under the blue trend line support line.

    To see these plays in action, check out the Technical Setups for the Week portfolio at Stockpickr.

    -- Written by Jonas Elmerraji in Baltimore.

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    At the time of publication, author had no positions in stocks mentioned.

    Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.