Were you one of the lucky recipients of the IRS giveaway? The taxman is sending out Publisher's Clearinghouse-esque letters to notify taxpayers about their checks, the purpose, which is to stimulate the economy, is far from guaranteed to stimulate anything. Wipe away the headlines of the week, record oil gains, inflation battles and you'll find plenty of retail stocks that have blown through the roof. The retail sector, which is generally most susceptible during a recession, has outperformed the market and most sectors. Now, wipe away the fluff on the front page, there were earnings releases from top retailers like, Wal-Mart, Macy's, JC Penny all with conflicting views on the market short-term future. Perfect, more conflicting reports on the economy. To avoid the pitfalls of using subjective news, we'll analyze the charts.

Now that those checks have started rolling out to the public, analysts expect only a small portion to be spent in the consumer discretionary sector. The majority is expected to be consumed by gas prices or simply parked in a savings account. The uncertainty of where the money is going is not so uncertain though. Investors and traders alike may be betting on the stimulus package to support retailers more than anything. And that is not surprising, since the purpose is to increase consumer spending. Since the package was announced, the consumer discretionary sector, which consists of mainly of retail companies like Target, Tiffany's, Coach and Macy's, has outperformed all other sector in the last five days and gained the most in the past month, second only to the tech sector.





Clearly investors and traders are supportive of the stimulus package. In past recessions, discretionary spending has suffered most, however, something continues to prop the sector up. The strong bullish trend became defined in the last few days, with several stocks cutting out bullish paths. Most recently, Wal-Mart and True Religion Apparel broke out. These are two, very different retailers from the high end to the value end, yet both are showing strength and the sector is showing real growth.

True Religion Apparel - Daily


Wal-Mart - Daily


Is it a good time to enter this part of the market, or is it too late? For options traders, it's not too late. The indicators are supportive of several days of upside action to many of the big players in the sector.

Whether the $145 billion will stay parked in savings accounts or be spent in retail stores is still up for debate. We can wait for the next earnings releases or we can look at the charts. Based on the current trends, retail stocks are in a defined bullish trend. Remember to wait for the low risk entry though, which will have a tremendous effect on your return.

Price Headley is the founder and chief analyst of BigTrends.com.