December retail sales may have been strong, but not every retailer is coming along for the ride.
This week, the Profit Scanner, powered by Recognia, identified three such stocks with weak charts thanks to external threats and poor fundamentals.
Going through the chart work for these retail stocks, it’s clear that despite the hype of a strong Q4 for retailers overall, there are plenty of bearish opportunities in the sector if you know where to look.
GameStop Corp. (GME)
First up is GameStop Corp. (GME), which (according to Bloomberg) is the most heavily shorted stock in the S&P 500 and under serious threat from the advent of digital video-game downloads.
On Jan. 7, the Profit Scanner spotted two bearish technical events for GME, the latest in a parade of bearish events since mid-November.
One such event was the bearish Symmetrical Continuation Triangle. This pattern emerges when a stock breaks down out of a consolidation period, suggesting that the prior downtrend will continue. The Symmetrical Continuation Triangle is made up of two converging trendlines as prices reach lower highs and higher lows.
Volume diminishes as the price trades within an increasingly narrow range — then noticeably increases when the price breaks down below the lower trendline, well before the triangle reaches its apex.
In GameStop’s case, this bearish pattern implies a further decline to $28.50 – $29.40 (a 12% – 14% drop from the Wednesday close) in the next 16 trading days. The other bearish event that occurred on Wednesday was a cross below the 21-day moving average, more evidence that GME stock’s downtrend will continue.
Office Depot Inc (ODP)
Office Depot Inc (ODP) also suffered a bearish 21-day moving average crossover on Jan. 7. For those who are new to these techniques, moving averages are a key tool in technical analysis because they smooth out the volatility on the chart, creating a less “jerky” line that makes it easier to spot the underlying trend.
In addition to breaking the 21-day moving average, ODP has been flashing a series of bearish technical indicators and oscillators since Jan. 2, including the Williams %R, the Momentum indicator and the short-term “Know Sure Thing” (KST).
After all, the last bullish headline for Office Depot was in mid-December, when there was talk of a merger with Staples, Inc. (SPLS) — but the deal hit regulatory roadblocks, and analysts are predicting a lackluster Q4 earnings report in coming weeks.
Ann Inc (ANN)
Ann Inc (ANN), parent company of Ann Taylor and LOFT stores, has a similarly dire technical picture. Like ODP, ANN’s chart shows a bearish short-term KST, which is an oscillator made up of four time periods that uses a moving average and is weighted by time period to produce a smoother curve.
When the short-term KST falls below its moving average (as was the case here), it amounts to a bearish signal for the next two to six weeks.
ANN also crossed below its four-day, nine-day and 18-day moving averages on Jan. 5, and the very next day, analyst firm Zacks downgraded the stock, citing “external pressures” like falling traffic and shipment delays, as well as “soft product performance” at Ann Taylor stores.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.
