An Interesting Retail Thesis for Halloween

Two of our Members noted separate ideas today which I think can be fused together to create an intriguing pair trade. Both ideas are in the retail sector, but one of them is looking up while the other is on the cusp of a meaningful breakdown. 

In a corrective market, the notion of a pair trade tends to take on more significance, as a long/short pair within the same sector can be a good way to mitigate risk via lower net or overall exposure to equities as a whole. 

The long idea is Shoe Carnival, SCVL, quietly one of the best performers in retail footwear this autumn.

On the SCVL daily chart, first below, we can see an impressively smooth pattern with price basing neatly above all moving averages. If the current market bounce has legs, I like SCVL as a long, albeit with some hedging.

With this in mind, shorting Foot Locker may make sense to pair off versus a potential SCVL long. On the second chart below we have the FL weekly timeframe showing a major breakdown in play. There is some buyout risk, so buying puts in lieu of shorting common stock may be the way to go. 

Either way, though, if the current correction takes hold into November it is worth looking at some more pair trade ideas as a means of offsetting risk while still placing calculated bets.