One question on Wall Street's mind these days is the strength of the consumer and whether the retail sector can continue its outperformance in 2013.
The SPDR S&P Retail ETF (XRT) had a solid 2012, up 19%, compared with a 13% gain for the S&P 500. It wasn't looking good for XRT when shares fell 6.3% from Dec. 19 to Dec. 27, but it showed supporting action at its 200-day simple moving average, and volume has been strong during its recent rally. It's back to within 4% of its 52-week high.
Headwinds are out there, though. After a strong start to the holiday shopping season, the year ended with a whimper. MasterCard Advisors Spending Pulse recently said that holiday-related sales rose 0.7% from Oct. 28 through Dec. 24, below expectations of 3% to 4% growth. And data from Channel Advisors earlier this week showed a slowdown in spending at Amazon.com's (AMZN) and eBay's (EBAY) online marketplaces. Sales at Amazon.com rose 29.8% in December, down from November's rate of 43.7%. Meanwhile, sales at eBay rose 22.2% in December, down from 27.4% growth in November.
Let's just say that sentiment isn't all that positive in the retail sector at the moment. Many highfliers that have seemingly strong fundamentals are facing selling pressure as investors question their growth prospects.
After a massive 1,300% price move since the start of the bull market in March 2009, Ulta Beauty's (ULTA) technical picture is starting to weaken as shares remain under distribution. Late last week, the company said total sales in the seven-week holiday period from just before Thanksgiving to the end of the year rose 23% from a year ago to $475.6 million. Solid growth indeed, but same-store sales rose 7.4%, down from 12.6% in the holiday season of 2011. Late-stage bases are riskier buys, and Ulta is a good example of one.
Meanwhile, lululemon athletica (LULU) has been able to hold above its 200-day SMA in recent weeks, but big sellers have been in this name in recent days as well. A recent downgrade from Credit Suisse to neutral from outperform didn't help matters. Shares of the yoga apparel retailer are down 6.4% over the past six trading sessions. LULU hasn't broken down yet, but it's a high-multiple retailer that's up more than 1,500% since the start of the bull. A good argument can be made that the big money has already been made here.
Finally, earnings season hasn't ramped up in earnest yet, but PriceSmart (PSMT) got things off to a good start late Wednesday. The warehouse club operator is basically known as the Costco of Latin America and the Caribbean. Shorts ran for cover after the company reported profit of $0.66 a share, up 40% from a year ago. Sales growth decelerated again, rising 12% to $535.3 million, but investors didn't seem to mind, sending shares sharply higher in after-hours trading.
PriceSmart is another retailer with a solid track record of execution, but it has also been facing institutional selling pressure in recent weeks. Headed into this week, its weekly chart showed four weekly declines on above-average volume in the past nine weeks.
Short interest is high in the stock. As of Dec. 14, 1.9 million shares were held short. This has leveled off in recent months, but keep in mind that PriceSmart trades only about 150,000 shares a day, giving it a lofty days-to-cover ratio of 12.6.
PriceSmart is another big bull market winner, but it's also a late-stage base, and that makes it a riskier buy after a huge price move already.