Thursday, November 8, 2007

A Closer Look at Retail

With retail sales coming out today, it seems like a good time to look at the retail sector, with an emphasis on apparel stocks.

Here's the overall retail chart from Notice that depending on which trend line you use the index is either at the line or just below it. It's important to remember that sometimes the exact trendline is difficult to discern until after something happens. What's important is to catch the general feel of the stocks movement.

Also note the heavy volume that has occurred over the last few months on the downward price action.

The apparel sector has two bearish indicators.

1.) The index has broken a three and a half year upward trend.

2.) The index is below the 200 day simple moving average (SMA).

Both of these are very bearish developments.

According to Yahoo Business the five largest apparel store stocks are the Gap, Nordstrom, the Limited, Abercrombie and Fitch and American Eagle Outfitters. Let's take them from the largest market down.

The GAP is trading in a nine month range. Notice that after the July market sell-off the stock quickly moved back into the trading range it established.

Over the last month Nordstrom (JWN) has completely broken down on heavy volume. The stock is below the 200 day SMA, the shorter SMAs are below the longer SMAs and prices are below all the SMAs. Simply put, this is a bearish chart.

The Limited is below it's 200 day SMA, which is bearish territory. However, prices appear to have consolidated over the last two months. Also note the shorter SMAs are bunched-up indicating a lack of overall direction.

Abercrombie and Fitch is below the 200 day SMA, indicating bearish sentiment. Also note the technical breakdown over the last week on heavy volume. The shorter SMAs are both pointing lower as well.

American Eagle Outfitters has been in a clear downtrend for the last year.