Stocks to watch on Monday: EADSY, PCH, TSLA >>> READ MORE

The Rally for Retail Stocks Might Be Over

Loss of momentum, weak technicals argue for caution

    View All  

The 200-day MA, at $80.88, is also coming within range. This means that the XRT ideally needs to break above its former high ($88.95) before an investor can say with a reasonable degree of certainty that this is just a garden-variety correction and not the beginning of a more significant downtrend.


More worrisome is what this could mean for the broader market. Retail stocks have been leaders in the bull run of the past five years, losing steam only during intervals of generalized weakness in stock prices. As shown in the chart below, this marks the first time that the XRT has flagged during a period in which the market itself has held up.

In fact, the last time its relative performance was this poor was during the panic period of August 2011, when worries about the first debt ceiling crisis and a potential Treasury default led to severe disruptions throughout the financial markets.


The Bottom Line

The slump in retail stocks appears to be a buying opportunity given the favorable state of the economy, but the technical picture and loss of momentum argue for extreme caution outside of specific names — such as Macy’s (M) — that are continuing to execute.

Tread carefully in retail stocks — and be mindful about the implications of the loss of leadership from this important segment of the market

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

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC