I’m Trading One Of The Biggest Trends In The Market

We all know that Covid-19 has caused a lot of changes in our lives as well as the economy. Some of them are new changes, while others have been accelerated as a result of the pandemic.

So when I was reviewing trade candidates this week, it’s no surprise that I saw that stocks were reflecting a trend in the economy.

The shift to online shopping, for example, has been building for years. Shutdowns related to the pandemic accelerated the trend. This is shown in the chart below.

Source: Federal Reserve

This is a chart of the percent of sales at non-store retailers as a percentage of all retail sales. Non-store retailers include websites and catalogs with catalogs losing market share. This week, even Ikea decided to stop printing catalogs. The Swedish retailer finally accepted that the future of retail is online.

This is a trend that is likely to continue. Even when brick-and-mortar retailers are allowed to reopen, consumers will continue to spend a large amount online. This is a certainty because the largest retailers are adopting e-commerce.

Source: Visual Capitalist

The top 10 e-retailers have about 63% of the total online market share. Amazon is at the top of the list with a market share of about 39%. Walmart is a distant second at 5.8%.

Some surprises on that list include Home Depot, grocery retailer Kroger, and Target.

How I’m Trading This Trend

It’s a diverse list of retailers, but there is a common bond connecting all ecommerce: shipping. That brings me to my most recent trade recommendation, United Parcel Service, Inc. (NYSE: UPS).

Reports indicate that online sales reached $10.8 billion on Cyber Monday, the Monday after Thanksgiving. That set a record for the largest e-commerce shopping day ever, Adobe said. Its data tracks transactions from 80 of the top 100 retailers. Adobe expects online sales will rise 30% from last year to $184 billion over the entire holiday season.

UPS seems to be handling the surge in accordance with its plans. A UPS spokesman told Wall Street Journal:

“The company is working closely with its largest shippers to steer volume to locations with available capacity and making sure that large customers know how much room is available.”

“It is critical that UPS and its customers execute the plans built through our collaboration,” the spokesman said. He said UPS also wants to maintain the network for other customers, including small- and medium-size businesses and for medical shipments, including Covid-19 vaccine distribution.

The limits imposed by UPS [on retailers including Nike and Macy’s] are a change from past holiday seasons when the carrier had wiggle room to take on extra shipments, often at higher rates, from customers due to the addition of sorting capacity.

But FedEx and UPS for months have been processing packages at levels more common during the Christmas season and were preparing to layer another surge of orders on top of that. They have responded with restrictions on capacity and surcharges to offset higher costs from hiring tens of thousands of workers and renting extra equipment.

Traders seem to like the company’s progress and are pushing the stock to new highs. The stock is on an Income Trader Volatility (ITV) “buy” signal.

Action To Take

The rationale for this income trade is again purely technical and focused on the short term. There are still long-term risks in the stock market that cannot be ignored. I’ve written about those risks several times, so I won’t go over the list today.

But for now, the trend and seasonal tendencies confirm that trend should continue for at least a few weeks.

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