Insights: Bullish Retail Stocks
Since this time two years ago, the default—and correct—approach to retail stocks has been “underweight-and-forget.†Today, the underweight portion remains intact, but not so for the forget half.Retail stocks are beginning to exhibit signs of stabilization. Exhibit A: the SPDR Retail ETF (XRT), a nearly equal-weight fund, is reversing a four-month price and relative strength decline.
And, as we showed in our April 11 Compass, XRT's internals reveal signs of latent strength: (1) the advance-decline line is rising, and (2) the percent of its constituent stocks trading above their 50-day moving average did not confirm the recent price lows (see next page).
Looking through each constituent chart, it's still a selective environment. Most stocks fall into the following categories:
• Uptrends: AMZN, BBY, BURL, COST, EXPE, FL, OLLI, PCLN, PLCE, TIF and ULTA.
• Visible Bottoms: ABG, CHS, FIVE, HZO, LE (buy), SHLD, SPLS, WFM, and WMT.
• Downtrends with Bullish Momentum Divergences: AEO, ANF, ASNA, AZO, BKE, DDS, DKS, DSW, FINL, GES, GNC, JCP, JWN, KSS, M, QVCA, SBH, SFM, and ZUMZ.
• Downtrends without Bullish Momentum Divergences: CAL, CATO, CVS, EXPR, FRAN, GCO, KR, LB, MNRO, SFS, SIG, TGT, TLRD, TRIP, and TSCO.
How do these categories translate into actionable ideas?
The first two categories get the technical nod of approval as buys, though for different reasons. The third—“with bullish momentum divergencesâ€â€”contains names whose downtrends are slowing, names to keep on watch lists as bottom-fishing ideas. The fourth—“without bullish momentum divergencesâ€â€”are names to avoid until visible bottom patterns emerge.
To repeat, this is not a broad recommendation to buy retailers. Breadth, though improving, doesn't warrant that. Instead, we want to (1) point to this industry's stabilization as a welcomed improvement to the market's structure, and (2) highlight several actionable names.
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Abercrombie & Fitch, through its subsidiaries, is a retailer which primarily sells its products through its wholly-owned store and direct-to-consumer channels, as well as through various third-party wholesale, franchise and licensing arrangements. The company provides an assortment of apparel, personal care products and accessories for men, women and children under the Hollister, Abercrombie & Fitch and abercrombie kids brands. The company has operations in North America, Europe, Asia and the Middle East. The company's operating segments are brand-based: Hollister and Abercrombie, the latter of which includes the company's Abercrombie & Fitch and abercrombie kids brands.
Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.
Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.
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