The Amazon Books store in Seattle. Bloomberg News
           
 
With such retail giants as Wal-Mart down by one third of its value year-to-date one might think that they have had their final markdowns. It doesn’t look that way. Trends across the group are still to the downside, and the bears are starting to attack the last holdouts.

The SPDR S&P retail exchange-traded fund peaked relative to the market in April although its chart shows a trading range in the first half of the year (see Chart 1). It fell with the market over the summer, but unlike the Standard & Poor’s 500 its chart did not show much of a September-October rally. Recall that the S&P 500 put together a six-week winning streak that ended with last week’s pullback. The index came very close to wiping out its entire summer swoon.

Chart 1

SPDR S&P Retail ETF


Retail was not so lucky. With very little cushion below it, the retail ETF fell below support at its September low to levels not seen since the Aug. 24 mini-flash crash. It is solidly below its 50- and 200-day moving averages and arguably below the rising trendline drawn from its 2008 bottom.
 
Over the past few weeks, we’ve seen price debacles in the broadline retailers including Macy’s, Dillard’s and Nordstrom, which plunged 17% after reporting disappointing earnings Friday. Even Kohl’swhich soared last week after announcing better-than-expected third quarter earnings, fell back to touch fresh 52-week lows. That is not how strong stocks behave.
 
There are many other retailers in bearish trends, but the more important point is that drivers for the sector – some of the largest stocks in the group by market value – are finally showing weakness. Home Depot (HD), for example, ran out of steam earlier this month as momentum indicators sagged. Last week’s selloff was steep and accompanied by extremely heavy volume, so apparently this big-cap stalwart finally lost its luster.
 
The real test, of course, will be Amazon.com. While still classified as a technology stock in many circles, Amazon is the largest stock in the retail ETF with a market value 161.8% greater than Wal-Mart’s. (Those who keep track of such things may notice that 161.8% is a Fibonacci ratio.) Amazon has been the retail sector’s leader since breaking out last January (see Chart 2).

Chart 2

Amazon.com


The stock jumped higher at each of its four earnings releases this year and more than doubled in price, excessively high fundamental valuations be damned. Unfortunately, the technicals have finally caught up with it.

While the major rising trend remains intact, this is the first time this year that a price reversal and changes in indicators suggest a real pullback is in store. For those with a more technical bent, they include extreme distance between price action and the 50-day average, prices falling away from the upper Bollinger Band and a weekly RSI divergence.

Perhaps the scariest group within retail is apparel. Off-price retailer TJX, owner of the T.J. Maxx and Marshalls chains, was a top performer for several years until dropping from near a 52-week high to a 52-week low in just the past two weeks.

And L-Brands owner of Victoria’s Secret and Henri Bendel, seems to be on a similar path. After breaking through to new highs in October, it abruptly reversed to the downside, leaving an ominous reversal pattern and technical failure in its wake (see Chart 3).

Chart 3

L Brands


The stock moved above resistance in early October but did not show any true power until jumping in early November. After stalling again immediately, it jumped back down, leaving an “island reversal” in the charts and a break of the rising trend from August. Another leader has fallen.

In September, I wrote here that several retailers were approaching major support levels (See Getting Technical, On Sale: 4 Retail Stocks With Good Looking Charts, Sept. 30). They included Macys, Bed Bath & Beyond and Wal-Mart, with an honorable mention to Gap, which scored what appeared to be a selling climax. None of them pulled themselves together to form any sort of basing patterns, however, and they all continued lower below those supports.

The trend here remains down until proven otherwise. If you are looking for stocking stuffers for your portfolio this year, retails stocks don’t yet fit the bill. At this rate, however, they may soon be small enough to fit.