Get Your Shopping Lists Ready

 | Aug 29, 2011 | 11:30 AM EDT
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Retail stocks have been tossed around like debris in a hurricane this August, victimized by fears of a major economic slowdown. This violent action has destroyed bullish price patterns in the majority of sector issues, but a handful may recover and resume strong uptrends between now and the upcoming holiday season. As for the rest, get your shopping lists ready because they could offer excellent short sales well into 2012.

Let's take a snapshot of this beaten-down group and see what's working and what isn't as we head toward September, which is a historically tough month that is on track to start out well and end up ugly. At least, that's what I expect, with recovering equities pushing relentlessly into major resistance levels, where the vicious downtrend will return and take out the August lows.

Here is the leader's list of retailers with market capitalization above $500 million dollars:

  1. PriceSmart (PSMT)
  2. Dollar Tree (DLTR)
  3. Wet Seal (WTSLA)
  4. AutoNation (AN)
  5. Vitamin Shoppe (VSI)
  6. Genesco (GCO)
  7. Sally Beauty Holdings (SBH)
  8. AutoZone (AZO)
  9. TJX Companies (TJX)
  10. EZCorp (EZPW)

These top performers follow the same profile we saw back in 2008 and 2009, with discounters, pawn shops and auto parts suppliers attracting hunkered-down costumers that are spending their cash on necessities, not luxuries. AutoNation is the odd name on this list, as it is benefiting from tight inventories due to the Japanese earthquake, even though U.S. auto sales are now losing steam at a rapid pace.


Sally Beauty Holdings (SBH) -- Monthly
Source: eSignal

Sally Beauty Holdings, spun off from Alberto-Culver in 2006, has been a quiet giant in the last three years, rising off a bear market low at 2.66 and breaking out to an all-time high last September. The uptrend stalled at 18.62 in July, giving way to a slow decline that picked up speed and volatility after the stock broke 50-day EMA support on Aug. 2.


Aggressive buyers stepped in above $15, with that price level undergoing multiple tests in the last three weeks. Relative strength indicators are now rising, with the stock pushing against intermediate resistance near $16.50. Given these positive dynamics, I'm looking for a modest breakout and recovery that tests the 2011 high in the next three to four weeks.

The 10 worst performing retailers at the same capitalization level reads like a Who's Who of your favorite shopping mall denizens:

  1. Aeropostale (ARO)
  2. American Eagle Outfitters (AEO)
  3. Urban Outfitters (URBN)
  4. Collective Brands (PSS)
  5. Office Depot (ODP)
  6. Gap (GPS)
  7. RadioShack (RSH)
  8. Sears (SHLD)
  9. Saks (SKS)
  10. Zumiez (ZUMZ)

This laggard's list is filled with specialty shops that will lose considerable revenues if a double-dip recession becomes reality in 2012.  Teen and young-adult oriented retailers are taking the biggest hits right now, with those important demographics suffering from high unemployment rates and a dim outlook that might not brighten until 2013, at the earliest.

Sears (SHLD) -- Monthly
Source: eSignal

Sears, the second highest capitalized retailer on this list, is flashing the most interesting short-sale opportunity. The stock rallied from $26 to $125 after the bear market ended, topping out in April 2010 and selling off to a summer low at $59. The bounce into early 2011 retraced half of the correction and then yielded to renewed selling pressure in February.

The decline broke the 2010 low on Aug. 18, gapping through support on heavy volume. The price action since that time shows a consolidation pattern in the mid-$50s that could yield an oversold bounce, filling the gap between $56 and $60. Look for sellers to return in force at or just above the blue line, triggering the next leg of a downtrend that reaches the mid-$30s in 2012.

Columnist Conversations

I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...
I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...
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