Retail Stocks Offer Meaty Opportunities for Interested Bears

In looking at the outcome of a potential stock market sell-off, the more obvious low-hanging fruit are the financials (e.g. (XLF) down -11.16% on Monday). However, since many of my investment strategies are derived from the theme of a weaker consumer base, I am quite pleased that the Retail Holders ETF (RTH) was only down -3.88%. This means there is still some meat left on the bone and a better risk-to-reward ratio for bears on the prowl for short candidates.

In these economic times, consumers who are still employed are increasing their personal savings rates, while those without jobs are spending less by default. Banks have also reduced the volume of consumer loans they normally make. All of these are the results of the deleveraging process that continues in the U.S. economy, which is dependent upon 70% consumer spending.

A glance at the chart below shows that the RTH has broken its uptrend channel and if it violates support at the 75.34 level, there’s quite of bit of downside left (see retracement levels on chart below). The RTH is overbought and has exhibited clear signs of divergent weakness, as both its volume and MACD have steadily declined. This is a classic sign of distribution into deceptive market strength.

For those willing to assume more risk, they may also consider some of the exchange traded fund’s more vulnerable components: Best Buy (BBY); Costco (COST); Home Depot (HD); Kohl's (KSS); Limited Brands (LTD); Macy's (M); RadioShack (RSH); Target (TGT); TJX. These symbols represent companies where consumers are more likely to spend their discretionary income. In the interest of keeping this article brief and to the point, it is practical to exclude charts for all the above. However, if one has the time and resources to look at some of these, they will find similar bearish patterns comparable to the RTH.

(Note that I have avoided names that reflect consumer staples like grocery stores, discounters, drug stores, and online-retailers as their business models may be more resilient in this economic environment. Also this report is merely a starting point and investors are strongly encouraged to do their own homework to determine if these companies meet their requirements for short candidates.)

Disclosure: Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

Comments

[Speedspirit:]

All depending on Govt news. Un-American to hope for a worsening situation. Better trades out there.

Apr 21 07:46 AM

[J Clinton Hill:]

Greetings Speedspirit,

Please do not misinterpret me. I am not wishing for worse conditions, but trying to call things as I see them. The emperor has no clothes.

I would gladly sacrifice my ego and welcome a legitimate sustainable surge in retail spending along with economic recovery.

Consumer spending is way down as evidenced by the large drop in the most recent trade deficit report. Normally, falling oil prices have been the culprit for a shrinking trade deficit, but this time it was attributed to non-energy components. Most of "that stuff" that we buy from retailers is imported.

Don't get me started on patriotism and what defines an American.
What is un-American is the fact that big banks have taken taxpayer dollars to bail their asses out and now they turn around and sodomize consumers by raising credit card interest rates as they face unemployment and tighter credit conditions. If anyone wants to worsen conditions for consumers, it's those blood sucking greedy beady eyed bastard bankers. Not me!

I devote/donate a certain portion of my day to write this blog as a free public service to help people. You are welcome to disagree with any and all of my analyses 6 ways to Sunday, but don't ever question my loyalty to America or its common interests. My immediate and extended family throughout generations has risked and sacrificed its blood in military service to this country. I'm not some blue blooded wanker born on third base believing that he hits triples. I've worked for everything I've ever gotten and none of my wealth has been acquired thru fraud, legal loopholes or a golden parachute for screwing up something.

Again, feel free to disgree with my analysis (which has absolutely nothing to do with my allegiance and love for this country). The fact that any of us is willing to put up with this fricking bailout without a revolt demonstrates a patriotic willingness to put the common interests of the country ahead of our own and future generations.

I really hope I am wrong on this one, but the bottom line is while consumers/taxpayers are getting hosed Wall Street is up to it usual monkey business of selling/distributing stocks on lower volume in a bear market rally.

Have a nice day and God bless America...

Sincerely,

Hillbent.com


On Apr 21 07:46 AM Speedspirit wrote:

> All depending on Govt news. Un-American to hope for a worsening situation.
> Better trades out there.

Apr 22 03:00 PM

[Danny Furman:]

No need to defend yourself Hillbent, the sane ones can separate information and emotion. I agree that alot of retail and financial brands were kept afloat by abused credit etc., but I see enough beaten down value (am scared to short) to focus long on water utilities (check out HOO), china... I recently bought Harmony Gold, mostly on your recommendation. Are you long-term-hyper-bullish on gold like many others? South Africa/Harmony in particular? I'll check your site but would appreciate any feedback.
Thank you for the info and insight.

Apr 29 02:02 AM