Last week, I noted that stocks might be entering an “irrational exuberance” type of market. The Federal Reserve’s easy money policies are a leading cause of this environment, but the current market also feels like a relief rally.
A relief rally occurs when traders are prepared for bad news and the news comes in better than expected. In some ways, the past few months have been better than expected. There’s plenty of bad news, but it’s often not as bad as it could be.
Economic news has consistently fit this pattern. Inflation is high, but there is always a reason to believe that higher prices are only temporary. The employment report hasn’t been as good as hoped for, but there is always something positive, like higher wages, in the data.
This dichotomy in the economic data is at least partly caused by how people feel about the news. We are seeing signs of caution in the data, but we are also seeing signs of a longing for normalcy. An example of that is in the retail sales data.
Consumers are spending money, but the gains in retail sectors are uneven. One of the biggest gainers is the spending at Sporting Goods, Hobby, Musical Instrument, and Book Stores. The chart below shows that spending in this category increased 13.8% in the past year and is well above trend.
Source: Federal Reserve
Spending in this category was fairly steady in the five years before the pandemic. This coincided with the rise of streaming services. But spending in this category surged as the pandemic shutdowns eased.
This is a broad category, but these stores all share something in common — they benefit from spending by consumers who have time to dedicate to activities outside of work.
For some, the reason for the spending seems to be a reaction to the pandemic. Many people want to spend time doing something enjoyable after facing restrictions for months. But the spending seems to be sustainable as consumers are acquiring new skills and are likely to spend more time pursuing these activities as times return to normal.
How We Can Profit From This Trend
One of the companies that should benefit from this trend is Dick’s Sporting Goods, Inc. (NYSE: DKS).
In the short run, the stock provided an Income Trader Volatility (ITV) “buy” signal after completing a brief pullback.
I developed the ITV indicator many years ago to specifically tell me when an individual stock’s volatility reaches a short-term peak. This allows me to balance the potential risks and rewards of the trades we make over at Income Trader.
DKS’s recent strength is due to a strong earnings report. In the most recent quarter, sales grew 21% compared to a year ago. The company reported improvements in same-store sales that were open at least one year and significant growth in online sales. Operating efficiencies increased profit margins.
Earnings increased by 58% compared to 2020 and is up over 300% in two years. Analysts have been raising their estimates and now expect earnings per share of $12.03 in 2021.
Given all of these factors, some traders might be tempted to simply buy DKS. But over at Income Trader, we can use our strategy to generate immediate income from DKS. In fact, if everything goes according to plan, we’ll be in this trade for 38 days or less, pocket our income, and move on. We also have the ability to make another trade like it if we want to generate additional income.
I like to think of this strategy like having your own “P.I.N.” or personal income number. It allows us to get paid right away, without having to buy and simply hope for the best.
And it can lead to thousands of dollars in reliable income every month. In fact, over 90% of the trades I recommend to readers are successful.
The best part? It takes only a few minutes per week to make these trades. If you’re interested in finding out how my system works, I invite you to click here.