5 retail stocks suffering markdowns

These consumer names are being dragged down by heavy selling.

By InvestorPlace Mar 26, 2014 3:31PM

Caption: An office building occupied by Amazon.com in Sunnyvale, Calif.
Credit: © Kristoffer Tripplaar/AlamyBy Anthony Mirhaydari


While the Standard & Poor's 500 index ($INX) trades just below record highs, continuing a month-long sideways slide just below the 1,880 level, a growing swath of the market is coming under intensifying selling pressure.


Consider that the small caps in the Russell 2000 ($TOMX) are on track for their fourth-consecutive decline on Wednesday as the index rolls down its lower Bollinger Band for the first time since the start of the January selloff. That's a big warning sign flashing red. All is not well within the market.


One by one, cyclical economically-sensitive sector groups are rolling over. Big tech and biotech have been the biggest laggards recently. But retail stocks are now rolling over after J. Crew noted concern over weak traffic trends on Tuesday, bringing out the sellers in a big way.


As a result, the Retail SPDR is looking about as appealing as a cold shower, falling out of its month-long trading range on a surge of negative volume. Here are five industry stocks you need to avoid, or could even consider playing on the short side:

American Eagle Outfitters (AEO) is falling below support from its October and January lows after recently suffering a series of analyst downgrades after issuing disappointing forward guidance earlier this month.


retail-stocks


AEO stock has fallen 13 percent year-to-date, and conditions aren't exactly looking up for the stock. The company is looking for a "high single digit decline" in same-store sales in the first quarter amid challenging conditions.


That's hardly a unique problem, but it will put further pressure on AEO stock.

Gap (GPS), which was a strong performer throughout 2012 and 2013, has stalled out over the last nine months and is rolling over once more.


retail-stocks


GAP stock has lost its 50- and 200-day moving averages for the first time since December after the company reported a sharp (-7 percent) drop in February same-store sales. This follows on disappointing guidance for full-year 2014 issued back in February.


And with retail headwinds as strong as they've been, there's no relief in sight for GAP stock.

Express (EXPR) has been in meltdown mode since issuing disappointing guidance back in December, ending a strong uptrend that started in late 2012.


retail-stocks


This was followed by a top- and bottom-line miss on quarterly results earlier this month, as well as another batch of weak guidance. A return to the 2012 support lows would be worth a 30%+ drop from current levels.


Given that news, EXPR stock is in store for long-term troubles.

Amazon (AMZN) is suffering from the selling pressure hitting both big tech stocks as well as retailers.


retail-stocks


The company, which is struggling to make its revenue-growth-at-all-costs model actually turn a profit, is threatening to fall through its February support lows in what could potentially be the first major breakdown for the stock since late 2011.


Amazon's troubles show that not even internet retailers are immune to the challenges in the retail sector.

Home Depot (HD), which posted an epic rise in 2012, is rolling over after tracing out a double-top formation near $82 over the last few months.


retail-stocks


HD stock is vulnerable to the pressure building in the housing market amid the rise in long-term interest rates. Already, mortgage origination activity has crashed below 2008 financial crisis lows. Less transaction volume means less home renovation spending, which will pull HD down from its lofty valuation.


A return to the September low would be worth a near 10 percent decline from here.


Disclosure: Anthony has recommended AMZN put option positions to his clients.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.

3Comments
Mar 26, 2014 5:56PM
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Folks, we warned about this earlier today, we call it as we see it....Just like Friday and Monday, we started with a big sucker's rally, up almost triple digits, then manipulators started doing their thing and about 1300 hrs the call to accelerate the selling came and the rest is history....Seen this a lot down here lately and we will see more of it because these scumbags are not afraid of getting caught, the SEC is totally worthless....A reason for today's aberration? Because they can folks, because they can and that is how they steal money from honest Americans out there....Its not Russia, its not Ukraine, its not oil, its not profit taking, its just plain cheating and manipulating...And do not think for a second that they are done for the week. Oh well.
Mar 26, 2014 4:16PM
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Mortgage origination activity has declined?  Well, DUH!!!!  When banks will not approve a mortgage applicant unless the borrower is gold-plated and really doesn't need the mortgage,  you would suspect the mortgage origination activity would decline.  Why do you think they can't build apartment buildings fast enough?  Because everyday working people can't get mortgages!!! 
Mar 27, 2014 6:36AM
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Hi. you notice Wal-Mart  is not  talked about, everyone runs down Wal-Mart  but I have never lost money on them !
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