While the S&P 500 trades just below record highs, continuing a month-long sideways slide just below the 1,880 level, a growing swath of the market is coming under intensifying selling pressure.
Consider that the small caps in the Russell 2000 are on track for their fourth-consecutive decline on Wednesday as the index rolls down its lower Bollinger Band for the first time since the start of the January selloff. That’s a big warning sign flashing red. All is not well within the market.
One by one, cyclical economically-sensitive sector groups are rolling over. Big tech and biotech have been the biggest laggards recently. But retail stocks are now rolling over after J. Crew noted concern over weak traffic trends on Tuesday, bringing out the sellers in a big way.
As a result, the Retail SPDR (XRT) is looking about as appealing as a cold shower, falling out of its month-long trading range on a surge of negative volume. Here are five industry stocks you need to avoid, or could even consider playing on the short side:
American Eagle Outfitters (AEO)
American Eagle Outfitters (AEO) is falling below support from its October and January lows after recently suffering a series of analyst downgrades after issuing disappointing forward guidance earlier this month.
AEO stock has fallen 13% year-to-date, and conditions aren’t exactly looking up for the stock. The company is looking for a “high single digit decline” in same-store sales in the first quarter amid challenging conditions.
That’s hardly a unique problem, but it will put further pressure on AEO stock.
Gap (GPS), which was a strong performer throughout 2012 and 2013, has stalled out over the last nine months and is rolling over once more.
GAP stock has lost its 50- and 200-day moving averages for the first time since December after the company reported a sharp (-7%) drop in February same-store sales. This follows on disappointing guidance for full-year 2014 issued back in February.
And with retail headwinds as strong as they’ve been, there’s no relief in sight for GAP stock.
Express (EXPR) has been in meltdown mode since issuing disappointing guidance back in December, ending a strong uptrend that started in late 2012.
This was followed by a top- and bottom-line miss on quarterly results earlier this month, as well as another batch of weak guidance. A return to the 2012 support lows would be worth a 30%+ drop from current levels.
Given that news, EXPR stock is in store for long-term troubles.
Amazon (AMZN) is suffering from the selling pressure hitting both big tech stocks as well as retailers.
The company, which is struggling to make its revenue-growth-at-all-costs model actually turn a profit, is threatening to fall through its February support lows in what could potentially be the first major breakdown for the stock since late 2011.
Amazon’s troubles show that not even internet retailers are immune to the challenges in the retail sector.
Home Depot (HD)
Home Depot (HD), which posted an epic rise in 2012, is rolling over after tracing out a double-top formation near $82 over the last few months.
HD stock is vulnerable to the pressure building in the housing market amid the rise in long-term interest rates. Already, mortgage origination activity has crashed below 2008 financial crisis lows. Less transaction volume means less home renovation spending, which will pull HD down from its lofty valuation.
A return to the September low would be worth a near 10% decline from here.
Disclosure: Anthony has recommended AMZN put option positions to his clients.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.