Signs Of Weakening In US Retail Stocks

Shares of retail and consumer discretionary stocks have seen a tremendous rise since March, in many cases doubling and tripling in price off the lows without a respite. Even if the the scenario for retail is becoming rosier (which I doubt), many of these companies are well past due for a significant pullback. Considering the cracks that are appearing in the major indices, now would seem a good opportunity to increase short exposure in consumer sectors. Looking at the charts below, many remain in rising trends, so it will pay to be selective, and in some cases wait until trendlines are broken or other sell signals appear.

Incidentally, I think many restaurant stocks are in the same boat (ludicrously overbought), but the charts for most of these companies don’t support shorting yet. I am currently short Brinker International (EAT), and will be watching other restaurant charts for signs of weakening. Here are some from retail:

- Retail HOLDRS ETF (RTH)

- Consumer Discretionary Select Sector SPDR ETF (XLY)

- Target (TGT)

- Stage Stores (SSI)

- Charlotte Russe (CHIC)

- Ross Stores (ROST)

- Macy’s (M)

- Lowe’s (LOW)

- EAT

DineEquity (DIN) reports earnings this morning. I will be interested to see how the market reacts. When the likes of Ihop, Applebee’s, PF Chang’s, and Chuck E. Cheese are the market leaders, you have to wonder, particularly when you look at the relative underperformance of commodity sectors.

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