Retail Stocks to Buy or Sell

Although the sector registered strong performance in the first quarter, momentum seems to be slowing, and as the going gets tough, MoneyShow's Tom Aspray goes shopping.

So far it has been quite a week for the stock market with two sharp down days separated by Tuesday's rally. The German DAX reached important support in the 7500 area Wednesday, but it along with most of the Euro stock markets, are higher in early trading.

The stock index futures are also a bit higher and the most positive sign, so far, is that Monday's lows are holding in the S&P 500 and Dow Industrials. Both are now back to their daily starc- bands but their daily technical studies have not yet given strong sell signals. They could, with another sharp down day.

Yields declined a bit Wednesday and are very close now to dropping below the recent lows. This would likely be a negative for stocks and yesterday's analysis indicates that the bond pros are signaling caution on the stock market.

The disappointing data last week on retail sales and consumer sentiment helped to pressure the stock market. The analysis of the key department store stocks shows which ones are likely to do the best going forward and which ones are likely to underperform.

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Chart Analysis: The weekly chart of the DJ US Broadline Retailers Index, which included department stores is up 16.6% from the November 2012 lows.

• This week's high at 605.45 was quite close to the weekly starc+ band at 611.
• There is initial support at 584 with the rising 20-day EMA at 567.
• The weekly uptrend that goes back to the 2011 lows is now at 540.
• The relative performance moved back above its WMA in early April.
• The RS line shows a long-term uptrend, line b, which is a positive sign.

Wal-Mart Stores Inc. (WMT) was originally recommended In January's 10 Most Oversold Dow Stocks but was mistakenly not included in this week's portfolio update.

• WMT hit a low of $68.13 in the middle of March and has since had an impressive rally.
• It has moved above its quarterly R1 resistance this week with the daily starc+ band now just above $80.
• The 127.2% Fibonacci retracement target is at $80.37 and it is one of my favorite methods of determining partial exit levels.
• The daily relative performance broke its downtrend, line d, in March.
• The weekly RS line also moved above its WMA last month.
• The daily on-balance volume (OBV) completed its bottom at the end of February by moving through resistance at line e.
• The OBV shows a strong uptrend, line f, and the weekly (not shown) is also positive.
• There is initial support now in the $77.50 area with further at $76.

NEXT PAGE: A Tale of Two Retailers

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One of the strongest department store stocks is Macy's Inc. (M), which convincingly broke through weekly resistance, line b, just three weeks ago.

• The quarterly R1 resistance at $44.23 has been exceeded.
• There is long-term resistance from 2007 at $46.60, line a, which also corresponds to the weekly starc+ band.
• The weekly relative performance moved back above its WMA in early March and shows a short-term uptrend, line e.
• The RS line is still below its previous highs, line d.
• The weekly OBV did confirm the price action as it broke through its resistance at line f.
• The OBV shows a long-term uptrend, line g, that goes back to the 2011 lows.
• There is initial support now in the $43 area with the breakout level at $42.
• The quarterly pivot is at $40.23.

Saks Inc. (SKS), of course, is geared more towards the high-end shopper and it tested major -resistance at $12.16, line h, last week.

• It has been under pressure this week as the weekly uptrend, line i, is in danger of being broken.
• SKS is now trading below its quarterly pivot at $11.21 with the S1 at $10.48.
• The relative performance has been diverging from prices, line j, and is now testing important support (line k).
• The OBV looks much more positive as it moved above its WMA last December and broke its downtrend, line l, in February.
• The OBV is well above its rising WMA.
• There is resistance now in the $11.70-$12 area.

What it Means: The technical outlook for the Broadline Retailers is positive, but a pullback over the next several weeks would not be surprising.

Wal-Mart Stores Inc. (WMT) looks the best longer term, but appears to be stalling, so I recommend taking some partial profits.

On a retest of the breakout level, I think Macy's Inc. (M) would be a good buy as its longer-term outlook is positive.

How to Profit: For Macy's Inc. (M), go 50% long at $42.36 and 50% long at $41.56, with a stop at $39.62 (risk of approx. 5.65).

Portfolio Update: Should be 50% long Wal-Mart Stores Inc. (WMT) at $68.34 and 50% long at $67.72. Sell half at $78.55 or better. Use a stop at $72.66.