Retail Stocks Under Selling Pressure, But For How Long and How Far Down?

David Frost // Market Outlook


May 20  

Today saw some ugly performance by Dicks Sporting Goods (DKS), Target (TGT) and others.  Some of the excuses were things like slow golf related sales and corporate mismanagement.  In reality, these excuses are convenient corporate speak when the market takes whatever news is available and decides it’s bad.  Dicks wasn’t down 18% on slow golf sales.  It was down because the large institutional holders decided to sell based on the overall trend of the retail sector.  This is a good indicator they feel the economic weakness is real and the consumer which drives a large part of spending in our economy is not going to spend as much as they would like.

Retail Spider – XRT is a great barometer

It’s a great indicator of what an entire basket of retail stocks are doing and where the sector is headed.  If you take a look at the charts below.  First we have a daily chart where I have drawn three purple lines the represent lower highs.  You don’t have to be a certified market technician to realize that lower highs are bearish, and price under the moving averages make the case worse.  The red and blue lines represent the 20 and 50 period moving average (MA).

Just looking at the daily chart doesn’t necessarily tell the entire picture, so any good analyst will continue on to see what other evidence can support the case.  Let’s move on and look deeper and longer.  The next chart is the weekly price graph.

Daily Chart XRT

Retail XRT Chart


Weekly Chart XRT

XRT Weekly Chart














Now focus on the purple trend line that connects the highs with the lower highs and you begin to see a better picture, and you’re also able to map out some probabilities with risk reward parameters.  Remember, taking a trade with conviction is important, but knowing where you’re wrong, if you’re wrong is more important.

Here we can see on a longer term chart that a more pronounced and well defined downtrend.  As long as the stock stays below the trend line it will remain bearish.  In addition, right now the XRT is below is weekly 20 and 50 week moving average.  Of course there will be up moves and down moves along the way, but don’t be surprised to see the XRT reach the 200 period moving average which right now is just above $60.  That’s a long way off from today’s close of $81.83.

I hope some of the retailers sell seat belts, because anyone long the stocks in this sector better be wearing one.  All our subscribers will be positioned for some great swing trades in the coming weeks and months.

For specific trade alerts, give the two week trial a try.  Nothing to lose just to see if the trades work out.  You’ll be pleasantly surprised.

About the Author

Trading and investing in markets is second nature to some, but a mystery to others. The goal is to provide a forum where everyday people aspiring to be part time or full time traders will learn how view markets differently and profit beyond their wildest dreams.

David Frost