Jewelry stores and other luxury retailers have grown more vulnerable to the exodus out of brick and mortar sales into e-commerce, as evidenced by Signet Jewelers, Ltd.'s (SIG) March shortfall, which triggered a breakdown to a 4-year low. Larger rival Tiffany and Co.'s (TIF) eased sector anxiety a few weeks after that dismal report, beating estimates while guiding higher, but also raised red flags with declining holiday sales and limp year-over-year growth.

Both companies step to the plate this week with first-quarter confessionals that are unlikely to calm nerves about market share loss to online portals. That’s especially true with bearish chatter rising after a recent expose alleged that industry leaders including Tiffany’s mark-up diamonds more than 250%. At a minimum, the allegation opens the door to Net upstarts undercutting traditional price mechanisms to steal customers.

TIF

Tiffany’s rallied above a 10-year resistance zone between $45 and $58 in 2010 and reached $84.49 in 2011, ahead of a decline that tested new support for nearly two years. It resumed its upward trajectory in 2013, grinding out a series of 2014 highs before reaching November’s all-time high at $110.60. The stock gapped down more than 14-points in January 2015 and entered a steep downtrend that continued into June 2016 when it finally held support at a 3-year low.

It turned higher in July and remounted the broken February low, setting off a 2B buying signal triggered by the failure of bears to hold a new resistance level. That technical event attracted steady interest that lifted the stock above the broken 200-day EMA after the November election. It added to gains in the first quarter of 2017, stalling at $97.29 a few weeks after earnings triggered a quick 8-point rally.

On Balance Volume (OBV) stalled in the second half of 2014 and entered an aggressive distribution wave that finally ended in June 2016. Accumulation since that time has been impressive, but price remains stuck under resistance generated by the 2015 gap and .786 Fibonacci selloff retracement. It will take a post-earnings rally above $104 to undo that technical damage while a selloff through $90 could signal a lower high within a broad topping pattern.

SIG

Signet Jewelers Ltd. topped out at $99.10 in 1990 and entered a downtrend that reached $2.54 in 1992. It rallied above $50 into the middle of the last decline and plunged during the 2008 economic collapse, posting a higher long-term low at $5.91. The stock completed a 24-year round trip into the 20th century’s high in 2014 and broke out into triple digits, reaching an all-time high at $152.27 in October 2015.

It turned sharply lower in 2016, giving up more than half its value into the October low at $72.65. A bounce into year’s end got sold aggressively at the start of 2017, generating a steady downtick that’s now reached at 4-year low in the upper-50s. Fortunately for beaten down bulls, the decline is nearing strong support at the 2013 breakout above the 2007 and 2012 highs near $50. That level could trigger a sizable bounce, regardless of company performance.  

The decline since 2015 has ground out a broad descending channel with support now located in the upper-30s. Meanwhile, OBV topped out with price and rolled into a downtrend that’s continued to gather steam for the last 18-months, highlighting the exodus of institutional and retail capital worried the company has fallen prey to the persistent flight out of traditional storefronts.

The Bottom Line

Traditional jewelry stores could show heightened vulnerability to the brick and mortar exodus in first-quarter earnings reports later this week. The relatively stronger Tiffany’s has more to lose than Signet Jewelers, which has hit highly oversold readings since dropping into a string of multi-year lows.

<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>.