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This column was originally published on RealMoney on June 6 at 12:36 p.m. EDT. It's being republished as a bonus for readers.

Retail stocks make interesting trades during the hot summer months.

It's a countercyclical period when speculators place bets on back-to-school sales and end-of-year holiday traffic. It's a good time for swing trading because any shifts in consumer spending tend to trigger strong price movement.

America's retailers reported unexpectedly strong May sales receipts last week. It seems that cash registers are still ringing despite high gas prices and growing talk about consumer burnout. In response to the news, many retail stocks jumped higher and set up key tests at their 2006 highs.

It's been hard to find stocks approaching breakout levels in this tough market environment. That's why it's such a relief to see the retail sector finally waking up from the dead. The nascent move gives traders a new place to risk capital and raises hopes that other market groups will follow soon.

Here are five retail stocks that show interesting price patterns.

Still, realize that timing is everything, and few of these issues can be bought at current levels without incurring relatively high risk. This is the right time to build a watch list that can be stalked for perfect trade entries in the weeks ahead.


(GES) - Get Guess? Inc. Report

rallied to an all-time high at $47.25 in February and pulled back. It found support in the lower $30s one month later and started a slow recovery back to the high. The stock reached that level in May and sold off once again. Last week's sales data triggered a gap that catapulted the casual-apparel maker into a second test at resistance.

Each assault at the high improves the odds that price will finally break out and move higher. But patience is required on this one: It could take another four to six weeks before the stock can move into a new uptrend and press firmly into the lower $50s.

In the meantime, patient players can start to build positions at current and lower levels.


(ZUMZ) - Get Zumiez Inc. Report

has been in a steady uptrend since it came public in 2005. The sports-apparel maker hit its last high in early May and then sold off to the 50-day moving average. It found enthusiastic buyers at that price level and has been moving sideways for the last week in a constructive pattern.

Watch as the stock approaches resistance at $35.89. A rally above this level should draw strong volume and trigger a breakout that yields a rally to $40. That price would mark a good exit for timing-conscious traders. Longer-term players can hang on for another leg higher, because it's hard to find strong bull-market stocks these days.

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I've traded

Skechers USA

(SKX) - Get Skechers U.S.A. Inc. Report

several dozen times this year. Its persistent uptrend seems to attract steady buying interest on every pullback. Clearly this stock has been a top retail performer of 2006 and nothing in the price action says this leadership will end soon.

The footwear company hit its latest high at $27.90 in late April and dropped into a sideways pattern. Although it's rallied into resistance twice in the last two weeks, expect another pullback before price gathers enough momentum to break out into a new uptrend. So the best advice is to stand aside here and let the stock show its intentions.

American Eagle Outfitters


was a top momentum play in 2004 and early 2005. But its powerful rally ran out of steam last July, when price rolled over into a steep decline. It took seven months before this trendy retailer finally bottomed out just below $20. It's been on the recovery trail since.

The stock returned to its 2005 high last month and started to sell off again. It looks like it's now found support at the 50-day moving average and is setting up another run at resistance. Once it gets there, the longer-term pattern will complete the final leg in a broad cup-and-handle pattern that might set the stage for a months-long breakout.

It's best to look at

Limited Brands


on a weekly chart. Note how this blue-chip retailer rallied to an all-time high in November 2004, and then sold off for an entire year before printing a bottom just below $20. It then pushed back to the long-term high, reaching it just two weeks ago.

Consolidation at this price level predicts that resistance will eventually break and let the stock charge up into the mid-$30s. But patience is required because it could take another month or two before the breakout actually takes place. In the meantime, put this stock on your trading screens and watch closely when it moves above $28.

P.S. from Editor-in-Chief, Dave Morrow:

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Alan Farley is a professional trader and author of

The Master Swing Trader

. Farley also runs a Web site called, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback;

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