Retail Sector Heading For A Spring Clearance Sale

David Frost // Additional Articles


March 25  

Since the March 2009 lows, the retail sector has outperformed the broader market by a margin of nearly two to one.  However, if your still invested in this high flying area, one needs to pay attention to current price action of the entire sector and at least one important company in the space.

Take a look at the Retail Holders Exchange Traded Fund and take notice of the recent and potential failure to rally.

Retail Index

In simple terms, when a stock or index drops below the 50 day moving average, it is usually warning sign of worse things to come.  At the very least, it should be a sign to pay attention for further breakdown of the sector.

One of the reasons why we may be seeing such price erosion is the rising commodity costs and the fear that many or most companies will not be able to pass those higher material input costs to the consumer in the form of higher prices.   After all, the consumer hasn’t really recovered since the recession began, except for the ones who have seen a recovery in their stock and bond portfolios.

One of the largest electronic retailers in the index is Best Buy.  Take a look at the recent deterioration in price of the stock.  Anyone with long term investments with gains in this area should consider the prospects for further downward pricing pressure and think about rotating into other areas before this one gets considerably worse.

Best Buy Stock Chart

The largest holding in the RTH is Walmart which hasn’t performed at all.  The stock has basically been stuck in the low $50’s for quite a while.  One of the primary drivers of their business is low prices and high volume.  If the concept of higher prices is upon us, either they will make less money by lowering margins, or they will be forced to raise prices where their customers will not be able to purchase as many items.  Either way, it seems like a troubling situation for the retail sector.

Our subscribers have the advantage of timely forecasts that prevent over staying our welcome in sectors that look like trouble, before the trouble gets too bad.  Please visit us at hpp:// to learn more about how you can identify these opportunities before the crown catches on.

Invest with vigilance.

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