What happened

Shares of Nordstrom (NYSE:JWN) were gaining today as the high-end department store chain continued to rally following news earlier this week that Pfizer's coronavirus vaccine candidate was effective in more than 90% of participants. There was no company-specific news out on Nordstrom today, but the company seemed to be benefiting from an ongoing short squeeze and hopes it will beat earnings expectations in its third-quarter report, due out on Nov. 24. Those expectations appear to have increased after luxury online fashion retailer, Farfetch (NYSE:FTCH), posted strong results in its third-quarter earnings report last night.

As of 1:18 p.m EST, the stock was up 8.9%.

The entrance to a Nordstrom store.

Image source: Nordstrom.

So what

Nordstrom has been hit hard by the pandemic along with the rest of the department store sector, but a number of signs now seem to favor a recovery in the stock.

First, the luxury sector is recovering faster than expected as companies including Burberry, Capri Holdings, and Saks have posted better-than-expected results in recent weeks. Today, Farfetch joined the list as that stock jumped as much as 16.5% after it reported 71% revenue growth in the third quarter. Nordstrom should benefit from similar tailwinds as it derives about a third of its sales from the online channel, giving it a buffer against weaker performance in its stores.

Additionally, the heavy volume of bearish bets may also be driving a short squeeze as 40% of the stock was sold short at the end of October. Given the news about the Pfizer vaccine and the positive trend in luxury, there's a good chance that Nordstrom shares have already bottomed out.

Now what

Nordstrom stock is still down more than 50% this year, giving it ample upside if the company delivers solid results in its upcoming earnings report. Analysts expect revenue to fall 15% to $3.12 billion and to see a loss per share of $0.09, down from a profit of $0.81 per share in the quarter a year ago. 

If the retail stock can beat those expectations, the stock could soar again.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.