Retail Darwinism

On the back of news this morning that Coach is buying competitor Kate Spade in a $2.4 billion deal, both stocks are rallying in a rare sight of the acquiring firm (COH) is being applauded immediately for their business acumen by the market. Beyond that, recent blog posts have focused on the potential bullish rotation into the retail sector at-large, perhaps more than compensating for the inability of, say, biotechnology and some healthcare stocks to sustain rotations of their own. 

Thus, the COH for KATE deal ought to be a checkmark in the bulls' column. 

Nonetheless, short-term concerns about the small caps in the Russell 2000 Index seem to be keeping a lid on most upside momentum plays thus far today. 

On the updated 30-minute chart for the Russell's ETF, below, note how last week's consolidation morphed into a larger wedge (light blue lines), as charts are known to do. Should sellers make another push below $138, one has to wonder if bulls will keep stepping in to buy despite recent diminished retuned each time they made that foray. 

Moreover, despite the strength and intrigue of quite a few individual retailers, the shopping mall REITs are acting rather poorly here. In the IYR, sector ETF for the REITs, large holding SPG is actually pushing multi-year lows as I write this. 

Indeed, 2017 may very well prove to be the year where the strongest retail-related plays not only survive but thrive, while the ones with a spotty future are punished harshly by the market.