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%.

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.

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Jeremy Bowman owns shares of Nordstrom. The Motley Fool recommends Farfetch Limited. The Motley Fool has a disclosure policy.