A spate of poor earnings announcements drove the retail sector into the garbage bin last month and it has yet to emerge.
Despite a rousing rebound over the past two weeks, the SPDR S&P Retail (ETF) (XRT) remains locked in a downtrend. Which means many retail stocks are ripe for the bears’ pickin’.
Indeed, a brief survey of XRT reveals a low-volume rally bringing the fund and many of its components to a low-risk entry point for bear plays. Every major moving average is still falling, which means rebounds should still be viewed with skepticism.
While retail stocks may pop for a few days yet, the time is soon at hand where another down leg could be upon us.
Behold, three retailers that are headed to the discount rack.
Discount Retail Stocks: Under Armour Inc (UA)
Under Armour (UA) was in the spotlight Wednesday after the retailer reduced its full-year outlook following news that Sports Authority’s bankruptcy had been approved.
Shares of UA were already steeped in a downtrend. The news and subsequent 4% drop merely added insult to injury.
But the buyers came out of the woodwork to grab UA stock at a discount yesterday, and the buying frenzy is continuing today.
With the overall trend of Under Armour pointing lower, however, the bounce back has a high risk of failure. Provided UA stock remains below $39, the bears remain firmly in control.
When the rally fails in the coming days, consider buying the July $37.50 puts for around $2.
Discount Retail Stocks: Nike Inc (NKE)
Fellow retailer Nike (NKE) followed in Under Armour’s footsteps yesterday with a down gap of its own.
The sympathy weakness didn’t last long, however, as NKE rallied back all throughout the day.
Despite an impressive showing from buyers, this rally (like the dozen before it) is likely doomed.
Like the rest of its sector, Nike is locked in a downtrend. I wouldn’t mind seeing a couple more up days to bring the stock back to resistance. Any type of rally into the $56 area should be sold post haste.
If it can get up there, consider grabbing the July $55 puts for around $2.25.
Discount Retail Stocks: Macy’s, Inc. (M)
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Macy’s, Inc. (M) rounds out our list of retail stocks with a chart mirroring that of the retail sector.
Macy’s was pummeled in May following a poor earnings release and has since returned to the scene of the crime.
The $34.40 zone looms large overhead. The previous support level and unfilled gap may well halt the budding bounce in its tracks.
A reversal in this area would be ideal for kicking off its next down leg, which hopefully will take the stock down to its recent lows at $30. If we see some type of reversal in the days ahead, buy the Aug $34 puts for around $2.70.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
