Bankruptcy Under The Tree
Investors are growing more worried about the health of retail, especially after Circuit City filed for bankruptcy protection.
The move caught investors somewhat off guard considering it happened ahead of the busy Holiday season. The company decided to file for bankruptcy protection because it was facing pressure from vendors who threatened to withhold products at a time when it needs them most.
Chapter 11 protection, will allow the electronic chain to hold off creditors and continue operations while it develops a reorganization plan.
Although the situation isn’t nearly as dire at Wal-Mart or Macy’s both retail giants report earnings later this week.
How should you play the retail minefield?
Best Buy rallied on Circuit City’s news, says the Wolf. But Circuit City is going to liquidate merchandise before Christmas. That can’t be good for Best Buy. I’m short Best Buy, because I don’t think it should have bounced on the news.
The only retail trade that I like on the long side is Wal-Mart , he bristles.
If you think the REITs such as Simon Properties are in play on this news, I’d think again, adds the Negotiator. Shorting them is swimming in the deep end of the pool. I'd stay away all together.
Options action suggests to me there will be more downside for Best Buy as well as Radio Shack, exclaims the Pit Boss.
Also stay away from electronics makers LG Electronics, AU Optronics and Taiwan Semiconductor , adds the Ambassador. They don’t look good either.
What’s the bottom line? – Looks like a blue Christmas for retail.
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Trader disclosure: On Nov.10, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Macke Owns (SDS), (MCD), (WMT), (BNI), (UUP), (MSFT); Macke Is Short (BBY); Najarian Owns (BBY) Put Spread; Najarian Owns (SBUX) Puts; Najarian Owns (CHK) Call Spread; Seymour Owns (AAPL), (BAC), (F), (MER), (BX); Seygem Asset Management Owns (PTR)