Let's check up on the retail sector to see how American storefronts are coping with the growing challenges to their bottom lines. These headwinds couldn't have come at a worse time because the group is now headed toward the pivotal fourth-quarter sales season.
The trouble started when China's currency shift triggered a selloff in retail stocks that depend on imports from that part of the world. I highlighted this event in my July 25 column, warning that it would take time before the decision was fully reflected in stock prices.
Many retail stocks printed rally highs just before or after the announcement and have now moved lower in a grinding correction. Dozens of sector charts show distribution patterns confirming that the yuan decision represented an important turning point for the group.
J.C. Penney
Let's look at J.C. Penney (JCP - commentary - Cramer's Take) as an example. The stock topped out just four days after the decision, then gapped down the following week. Notice how on-balance volume (OBV) shows a bearish double top, starting with June's lower high. The selling pattern suggests the stock is headed down to the upper $40s.
Notably, dozens of stocks in the sector now exhibit strong distribution patterns. These include household names such as Abercrombie & Fitch (ANF - commentary - Cramer's Take), Nordstrom (JWN - commentary - Cramer's Take), Bed Bath & Beyond (BBBY - commentary - Cramer's Take) and Staples (SPLS - commentary - Cramer's Take). Clearly, investors have serious concerns about these stocks' performance as we head into the 2005 holiday season.
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