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Tickers in this Article: SKS, DDS, M, TJX
Last week we took a look at the REIT space and commented how it was interesting that they were holding up fairly well. The stocks in this group took a hit over the past week and in looking at department store stocks, it's easy to see why. The department store stocks have also taken a hit and recently renewed fears of a weakening economy have been driving investors away from consumer discretionary stocks. Unlike the REITs though, the department store stocks are already breaking down and have charts that are clearly in trouble. IN PICTURES: 7 Tools Of The Trade

In looking at the chart for Saks Incorporated (NYSE:SKS), you can clearly see that SKS is in danger of heading lower. It was correcting in a channel through most of the summer as it drifted down from its April high near $10.50. It attempted to clear the top of the channel in July but abruptly turned lower a few days later. It is currently testing its July low which could temporarily halt the decline, but it will take much more consolidation to improve the health of its chart.

Dillard's Inc. (NYSE:DDS) is another department store stock that is looking weak. DDS was in a consolidation earlier this summer as it built a triangle base through mid June. It fell out of the triangle confirming the base as a top and failed a retest of this level later in July. DDS is slowly making its way lower and is also in a pattern of lower lows and lower highs. The near term level to watch is the recent failure at the $24 level for resistance and its recent low near $19.

The TJX Companies, Inc. (NYSE:TJX) also broke down from a similar triangle base in late June and is currently consolidating in an even tighter triangle just under its previous base. The failure to trade back above the $43 level is bearish and the path of least resistance is for TJX to break down from this new consolidation. The levels to watch would be the low near $40 and more importantly the $43 level just above.

Macy's, Inc. (NYSE:M) is one department store that was looking a little better than the rest, but is also in danger of breaking down. The company was drifting down in a channel after hitting rally highs in late April and recently cleared the channel in July. It has managed to hold above its 50-day moving average for a few weeks and is still well above its July lows. However, it is also testing a trendline it has been following as it moves higher and this trendline also coincides with its 50 and 200-day moving averages. If M closes below this area near $19 it would imply that a retest of the July lows would be forthcoming. The level to watch above would be $21, as a move above this level would set a new pivot high.

The department store stocks have been showing more weakness than the REITs, and many of these stocks are currently testing important levels as they head lower. The more likely scenario near term is that they find support at these levels, but the real test will be in how enthusiastic buyers are a week from now. These charts will need much more time before a solid base can develop and the threat of them continuing lower is very high. In order for a more solid base to form, these lows would have to hold followed by a successful retest or even a transition to higher lows and higher highs.

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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

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