Retail Stocks – The 7 Stock Charts You Need to Watch Now

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Has America’s spending binge finally come to an end?

It just may have, if you believe the message the market is currently sending. Consumer discretionary stocks in general, and retail stocks in particular, have experienced very shaky performance thus far in 2014. The downturn has picked up additional steam this week, as a number of retailers have sunk after reporting disappointing numbers.

To get a sense of what’s next for this group, the stock charts below might hold some clues.

Start With the XLY

Starting at the highest level for stocks geared to consumer spending, a look at the chart of the Consumer Discretionary SPDR (XLY) shows a fund that’s sitting precariously on its 200-day moving average. Further, after nearly three months of underperformance, XLY’s 50-day MA has begun to arc lower. This sets up the possibility of a “death cross” — or a move in the 50-day MA below the 200 — with just a little more downside from here.

The weakness in XLY is an interesting development since none of the other nine sector ETFs are close to either a violation of their 200-day MA or a death cross at present.

XLY stock chart retail stocks

Consumer Discretionary SPDR (XLY)

Investors need to be alert to this, but also employ caution before reading too much into it.

So far in this bull market, the threat of potential breakdowns in various sectors usually has been resolved with a rebound that removes the danger and keeps the rally alive. For now, then, the burden of proof is on the bears.

Still, a meaningful breakdown in XLY may signal that the tide may be turning for the broader market as we head into the summer months.

Warning Flags in Retail Stocks

Drilling down further, the SPDR S&P Retail ETF (XRT) is further along in the process of rolling over, particularly after Tuesday’s weakness in Staples (SPLS), Urban Outfitters (URBN), TJX Corp. (TJX) and others, and this morning’s bad news out of American Eagle (AEO).

Notably, a number of retailers have missed on top-line revenues even as they have meet or beaten earnings — a sign of flagging fundamentals. Another two or three days of weakness will trigger a death cross in the XRT, which may provide an early warning about the fate of XLY. Notably, both URBN and TJX nudged below recent support levels on Tuesday, indicating that investors in these stocks may have seen enough.

XRT retail stocks stock charts

SPDR S&P Retail ETF (XRT)

Among individual stocks, Home Depot (HD) — the fourth-largest holding in XLY — would be among the names in jeopardy of underperformance if XRT indeed breaks down. HD stock has hit support in the $72-$75 range on eight occasions in the past year, meaning that it would face a serious loss of momentum below this level.

HD stock is approaching a death cross of its own right now. For now, this is a stock to watch, not to bet against, despite missing estimates on Tuesday. With a forward P/E of 15.2 and a yield of 2.4%, HD likely has limited downside even on a breakdown.

HD stock charts retail stocks

Home Depot (HD)

The discount retailers, the stalwarts of the sector in 2013, are also among those nearing the danger zone. Both Dollar Tree (DLTR) and Dollar General (DG) are trading below downward-trending 200-day MAs, and both have experience the death cross.

The two stocks are also sitting right at support levels, indicating that bulls have little room left to maneuver in these names.

DG dollar general retail stocks stock charts

Dollar General (DG)

DLTR stock charts retail stocks

Dollar Tree (DLTR)

In the Internet retail group, eBay (EBAY) remains a mystery for technicians. Ebay stock has been stuck in a trading range for nearly a year-and-a-half now — an incredible amount of time for any stock, let alone one with a history of above-average volatility. Ebay is currently on the low end of its range, but note that it has already broken below this level briefly and managed to stay afloat.

At this point, any technical on this stock is just a guess. But one thing is certain: Traders should keep this one on the top of their watch lists.

EBAY stock charts retail stocks

Ebay (EBAY)

Finally, traders may also find opportunities to capitalize on additional weakness in Vitamin Shoppe (VSI) and United Natural Foods (UNFI), both of which have moved close to recent support.

VSI stock charts retail stocks

Vitamin Shoppe (VSI)

UNFI stock charts retail stocks

United Natural Foods (UNFI)

Positioning for breakdowns in individual stocks, sectors or the broader market has been a sucker’s bet in the past few years, as has any play on weaker consumer spending. At this stage, however, the retail sector looks to be increasingly fertile ground for traders.

As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/05/retail-stocks-7-stock-charts-to-watch/.

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