Discount Retailers Should Hold Up in a Risky Market

NEW YORK (TheStreet) -- The stock market has been under the cloud of a ValuEngine valuation warning since the major equity averages set new all time highs or multi-year highs in the May 20/May 22 window.

Since these highs could not be confirmed by negative weekly chart profiles, a new set of highs were set in early August. Again these highs could not be confirmed by all five weekly charts of the major equity averages. New highs followed again between Sept. 18 to Sept. 25 and so far positive weekly charts for the Nasdaq and Russell 2000 have prevented these highs from being confirmed as the fourth quarter begins.

The Nasdaq remains influenced by my semiannual pivot at 3759 after setting a multi-year high at 3798.76 on Sept. 20. The all time highs are 15,709.59 Dow Industrials set on Sept. 18, 1729.86 S&P 500 on Sept. 19, 6754.81 Dow transports on Sept. 20 and 1082.00 Russell 2000 on Friday.

If the Nasdaq ends the week above 3759 the upside potential monthly and semiannual risky levels at 15,932/16,490 Dow Industrial Average, 1746.4/1743.5 S&P 500, 3830 Nasdaq, 6811/7104 Dow transports and 1092.46/1089.42 Russell 2000.

Given a weekly close below 3759 on the Nasdaq, stocks become vulnerable towards annual value levels at 12,696 Dow Industrials, 1348.3 S&P 500, 2806 Nasdaq, 5469 Dow transports, and 809.54 Russell 2000. This week's value levels are 14,696 Dow Industrials, 1641.5 S&P 500, 3695 Nasdaq, 6318 Dow transports and 1034.93 Russell 2000.

I have liked the prospects for the discount retailers throughout this period and they continue to perform well and maintain buy ratings. On June 3 I wrote Discount Retailers Track Slow Consumer Spending.

Since then seven of the nine buy-rated names gained into my next post on Sept. 5, Big Lots, Dollar General, Costco, Remain Buy Rated. All nine have maintained a buy rating and six of nine continued to gain into today's post.

All nine stocks continue to have buy ratings and are overvalued by 3.5% to 23.2%. All have gained over the last 12 months five by 12.7% to 25.9%. Two are below their 200-day simple moving averages and seven are above reflecting the risk of a reversion to the mean. Today's table includes new monthly and quarterly levels where designated.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

Big Lots ($37.09 vs. $34.79 on Sept. 4) was up 2.2% between my June 3 post and my Sept. 5 post and is up another 6.6% since then. My weekly value level is $34.47 with a quarterly pivot at $36.41 and monthly risky level at $38.14.

Costco ($115.17 vs. $111.50 on Sept. 4) was up just 1.7% between my June 3 post and my Sept. 5 post and is up another 3.3% since then. The stock ended Monday below its 50-day SMA at $115.71. My weekly value level is $110.24 with a monthly pivot at $118.92 and quarterly risky level at $121.21.

Dollar General ($56.46 vs. $56.39 on Sept. 4) was up a solid 6.8% between my June 3 post and my Sept. 5 post, but the upside appears to have stalled. The stock is above its 50-day SMA at $55.48 with a weekly value level at $55.40 with a semiannual pivot at $56.97 and monthly risky level at $59.07.

Dollar Tree ($57.16 vs. $54.17 on Sept. 4) was up a solid 12.8% between my June 3 post and my Sept. 5 post and is up another 5.5% since then. My weekly value level is $54.67 with a semiannual risky level at $60.61.

Family Dollar ($72.02 vs. $70.29 on Sept. 4) was up a group leading 14.9% between my June 3 post and my Sept. 5 post and is up another 2.5% since then. The stock is above its 50-day SMA at $71.33 a semiannual pivot at $73.03 and weekly risky level at $73.34. My annual value level lags at $49.09.

Ross Stores ($72.80 vs. $69.09 on Sept. 4) was up a solid 7.4% between my June 3 post and my Sept. 5 post and is up another 5.4% since then setting a new multi-year high at $73 on Monday. My weekly value level is $69.84 with a monthly pivot at $72.34 and semiannual risky level at $79.86.

Target ($63.98 vs. $63.55 on Sept. 4) was the laggard down 8.6% between my June 3 post and my Sept. 5 post and has moved sideways since then. The stock is below its 50-day and 200-day SMAs at $67.13 and $66.71. My weekly value level is $58.82 with an annual pivot at $65.45 and semiannual risky level at $72.47.

TJX Companies ($56.39 vs. $53.87 on Sept. 4) was up a solid 6.4% between my June 3 post and my Sept. 5 post and is up another 4.7% since then. My weekly value level is $54.45 with a monthly pivot at $56.75 and quarterly risky level at $63.94.

Wal-Mart Stores ($73.96 vs. $72.91 on Sept. 4) was a laggard losing 2.6% between my June 3 post and my Sept. 5 post and is up just 1.4% since then. The stock is just below its 200-day SMA at $74.23 with the 50-day SMA at $75.36. My weekly value level is $69.90 with a semiannual pivot at $74.96 and monthly risky level at $79.27.

At the time of publication the author held no positions in any of the stocks mentioned.

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This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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