Shares of package delivery giant United Parcel Service (UPS) have lost over 10% since the company reported earnings on Tuesday. Investors were disappointed by a shortfall in revenue, which declined 6% from the year-ago quarter.
UPS also reduced its outlook for the full year. According to the company, package volume was "significantly lower" than expected in March, after coming roughly in line with estimates in January and February.
On Monday, the stock traded within 1% of a new 52-week high. By Wednesday, UPS was below its 50-day (blue) and 200-day (red) moving averages, and was trading at its lowest level this year.
When will UPS find support? According to the chart, the next major support area for the stock is roughly between $155 and $165 (shaded yellow).
Chart Source: TradeStation
Beyond the ramifications for UPS, what does this tell us about the retail sector? The company's fortunes are closely tied to U.S. retail sales, which declined by 1% in March.
If UPS is reporting lower package volume, then online retailers are likely receiving fewer orders. Investors will be watching Amazon (AMZN) closely for signs of trouble when the company reports earnings on Thursday.
What about some of the less-obvious names in the retail sector?
Chart Source: TradeStation
The retail sector, represented here by the S&P Retail SPDR (XRT) , is in a sideways trend. A major support area near $56 has held the line for the past year (black dotted line). The ETF's 50-day moving average (blue) is crossing below its 200-day moving average (red), an indication of bearish momentum.
Which names in the retail sector appear most vulnerable right now?
Target (TGT) has a particularly weak chart. On Wednesday, the stock hit its lowest level in a month.
Chart Source: TradeStation
Target is trading below its 50-day (blue) and 200-day (red) moving averages. The stock's MACD (moving average convergence divergence) indicator flashed a sell signal last week, and is trending lower (red dotted line). Target is scheduled to report earnings on May 17.
Macy's (M) chart looks even worse. Last week, the stock's 50 and 200-day moving averages formed a bearish cross (point A). A cascading series of lower highs and lower lows is clearly visible.
This week, Macy's MACD flashed a sell signal (point B). Macy's is due to report earnings on June 1.
Chart Source: TradeStation
It's important to note that the entire sector doesn't appear to be crumbling. As long as XRT holds above $56, I don't expect to see widespread damage. But if you're long Target or Macy's, now might be a good time to take some money off the table.
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