Retail Earnings to the Rescue?

The market's had plenty to worry about in recent weeks. Hopefully, October retail sales data and a busy week of earnings in the retail sector will bring buyers in from the sidelines. Major averages are still in a tough spot, hit hard by institutional selling in recent weeks as Wall Street frets about political gridlock, Europe and the underlying health of the U.S. economy. Headed into Monday, the Nasdaq Composite was nine percent off its recent high and the S&P 500 was six percent off its recent high. Friday's session marked the first day of a rally attempt for the major averages which means the earliest the market could flash a buy signal would be Wednesday. It would be in the form a big percentage gain in the indices (1.5 percent to two percent or more) in strong volume. On Wednesday, retail sales are seen falling 0.2 percent in October after a better-than-expected 1.1 percent gain in September. Excluding autos, sales are expected to rise 0.1 percent after gaining 1.1 percent in September. In terms of earnings, several high-profile retailers will be out with results. Last week, department store operators like Kohl's

, Macy's

and Nordstrom

came under selling pressure after Kohl's and Macy's issued tepid holiday sales guidance. After this week, Wall Street should have a pretty good read on business trends at several retail bellwethers. The numbers should be solid Tuesday from monster stock and institutional favorite Home Depot

, but it's a risky buy at current levels because it looks like it's ready to base and consolidate gains for a while after a lengthy run-up. The home-improvement chain reports Tuesday before the open. The consensus estimate calls for profit of $0.70 a share, up 17 percent from a year ago with sales up three percent to $17.9 billion. The stock is up 45 percent year-to-date, and when the market's under distribution, sellers tend to come into the biggest movers. It hasn't happened yet with Home Depot -- and the stock continues to hold above a key support level its 50-day simple moving average -- but it's extended in price and too late to buy after its last breakout in late July over $53.28. Meanwhile, Target

continue to face institutional selling pressure ahead of earnings Thursday before the open. It's expected to earn $0.77 a share, down six percent from a year ago. Sales are seen rising three percent to $16.9 billion. Its technical picture looks a lot worse than Home Depot's at this point -- not only because of several higher-volume declines in recent weeks but also because it's been meeting with repeated resistance at its 50-day simple moving average. Price action like this is indicative of a tired stock and can often lead to lower prices. A longer-term support level for Target is its 200-day moving average at $58.86. Two other former high-flyers in the retail sector -- Ross Stores

and TJX Companies

-- have been hit hard by institutional selling ahead of earnings this week. It's human nature to try to catch former leaders like this "on sale," but when institutions rotate out of former leaders like these, it means Ross Stores and TJX Companies are unlikely to resume leadership roles anytime soon. Here's a look at some other retailers set to report earnings this week: Tuesday: Dick's Sporting Goods

, Michael Kors

, TJX Companies

Wednesday: Limited Brands

, Petsmart

, Williams-Sonoma

Thursday: Ross Stores

, Sally Beauty

, Wal-Mart

, Gap