Bearish Pattern In Saks (SKS)

A report released recently by Goldman Sachs GS reveals that high-end retail name Saks SKS has been targeted by short-selling hedge funds. The stock has made a series of lower lows going back to May of this year. During this time, SKS has made four lower lows in succession. SKS also made a lower high in early August and is once again pulling back from those levels. If the recent pattern holds, and SKS puts in another lower low, it would indicate a price below the $7.14 level. During today's trading session, the pressure in SKS is continuing, with the stock falling 2.60% to $7.50. Year-to-date, however, the shares are still up almost 15% after a big run during the February-April stock rally. Given the current downward momentum and uncertainty about the economy, it is not unreasonable to think that SKS could give back all of its 2010 gains, providing short sellers at these levels with nice profits. Instead of outright shorting SKS, traders looking to express a bearish outlook on the retail sector could short sell Saks and buy a corresponding amount of a more defensive retailer like Costco COST or Wal-Mart WMT. Profits or losses, would then be determined by the spread between the returns of the two securities during the life of the trade.