It is a great understatement to mention that retail companies have been greatly affected by the onset of the coronavirus pandemic. However, with the recent bounce in the broad markets, active traders have started to wonder whether the momentum is likely to continue and if it is a signal of a bottom. In the paragraphs below, we'll take at several long-term weekly charts from across the retail segment and try to determine where stock prices are headed over the days and weeks ahead.
SPDR S&P Retail ETF (XRT)
Active traders who want to determine trends in a niche market sector such as retail often turn to popular exchange-traded products such as the SPDR S&P Retail ETF (XRT). As you can see from the weekly chart below, the March sell-off sent the price of the fund below a key long-term horizontal trendline. The sharp decline in price sent the reading on the relative strength index below 30, which suggested that the sector was oversold and due for a bounce.
The recent broad market bounce, which has also benefited the retail sector, has now sent the price of the fund back toward the newly formed resistance near $35.25. Bullish traders will keep a close eye on the dotted trendline over the coming days and weeks because it will likely continue to influence the price. Bullish traders will most likely want to remain on the sidelines until the price is able to move above the horizontal trendline or even the 50-week or 200-week moving averages, depending on risk tolerance and outlook.
L Brands, Inc. (LB)
One of the holdings of the XRT ETF that will likely catch the attention of swing traders over the coming week is L Brands, Inc. (LB). As you can see below, the price of the stock has fallen below the 200-day moving average and triggered a bearish sell signal by dragging the 50-day moving average lower as well. The common sell signal, known as the death cross, is often used by followers of technical analysis to mark the beginning of a long-term downtrend. The recent bounce from the March lows and subsequent failed retest of the resistance suggests that the bears are in control of the momentum and that they are likely setting their target prices near the low of $8.
American Eagle Outfitters, Inc. (AEO)
Another holding of the XRT ETF that could capture the attention of active traders in coming weeks is American Eagle Outfitters, Inc. (AEO). As you can see from the 10-year weekly chart below, the sell-off from the pandemic sent the price below the long-term support of a major trendline. More specifically, the breakdown, failed retest, and bearish crossover between the moving averages clearly puts the momentum in the favor of the bears.
The Bottom Line
Retail stocks have been badly beaten over recent weeks, and the slight reprieve from the lows has many active traders wondering whether a bottom is in place. Based on the charts discussed above, the breakdown below key long-term resistance levels along with bearish moving average crossovers suggest that the downward momentum will likely continue for several more weeks.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.