Retail Rally Sign of Resilience or Short Covering?

Pro traders were looking at strength in retail Wednesday, with the S&P Retail ETF up about three percent in the past five days.

Considering the ETF is made up of some of our nation’s largest stores, including Sears Holdings and JC Penney , should you put your money to work in other marquee brands?

Brian Sozzi, an analyst at Wall Street Strategies, certainly doesn’t think so. He thinks the gains are nothing more than a short covering rally, and points to big moves higher by Sears and La Z Boy—two names with big short interest.

“The S&P retail index it’s having a hard time closing above its 200 day moving average,” he said. “The pricing environment remains very competitive and the read on consumer confidences appears to be questionable moving into the holiday season.”

But that doesn’t mean Sozzi thinks the dollar stores, like Dollar General, are the best way to play retail. He’s not interested in putting his money there either. But his reasons are technical.

"The volume is not convincing me in the dollar stores,” he said. “If you look at the recent breakouts, there’s not much to get excited about.”

If you are looking for a retail play, Sozzi suggests getting creative. He likes Deckers Outdoor because it has been able to pass along price increases. He also suggests a short position in Skechers because Nike and Under Armour are doing so well.

As for the high end, he likes Nordstrom.

Steve Cortes said if Sozzi is right that the dollar stores are heading lower, then he would “definitely” be a buyer at lower levels.

“The lower end consumer has really gotten such a tax break from food and energy coming in as hard as they have,” he said, “they will have more money to spend at Wal-Mart and dollar stores.”

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Trader disclosure: On Sep 28, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Najarian is long (AAPL); Najarian is long (BX); Najarian is long (C); Najarian is long (MS); Najarian is long (HPQ); Najarian is long (AAPL) calls; Najarian is long (WLT) calls; Najarian is long (CSX) calls; Najarian is long (UNP) calls; Najarian is long (OVTI) calls; Najarian is long (JOYG) calls; Najarian has long options in (DLTR); Cortes is long SO; Cortes is long CAG; Cortes is long US Treasuries; Cortes is short AAPL; Cortes is short Nasdaq futures; Cortes is short Aussie dollar; Karabell owns DE; Karabell owns MTW; Karabell owns AAPL; Karabell owns CAT; Karabell owns FDX; Karabell owns GOOG; Karabell owns JPM; Kinahan is long INTC; Kinahan is long GE; Kinahan is long MOS; Kinahan is long TLT; Kinahan is short S&P 500

For Zach Karabell
Rivertwice is long CMI|
Rivertwice is long DE
Rivertwice is short XLF

For Brian Sozzi
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