Retail Bubble Stocks Are Vulnerable

NEW YORK ( TheStreet) -- The Conference Board's Consumer Confidence Index is a barometer I monitor in order to assess the risk/reward for retail stocks.

Since 2007, this index has been well below the 90-to-120 neutral zone. This makes it hard to justify the strength some retail stocks have seen recently, which has driven them to all-time highs.

At 10:00 a.m. EDT Tuesday we learned that the Consumer Confidence Index fell to 62.0 in June, down from 64.9 in May.

The index is based on a monthly survey of 5,000 households. In tracking the ebb and flow of this index from 2005 to current, we can observe how consumers reacted as the seeds were planted for the "Great Credit Crunch" at the end of 2007 and during the Great Recession.

The Consumer Confidence Index reached a three-year high in June 2005 with a reading of 105.8. Remember that the homebuilding stocks peaked in July 2005.

In September 2005, the index recorded its largest single month decline in 15 years, to 86.6 from 105.5. It moved back above 105 as housing prices continued to rise into June/July 2006.

The strong stock market in 2007 kept confidence elevated even after community banks peaked at the end of 2006 and as regional banks peaked in February 2007. Then in September 2007, the index began to slump again, falling to 99.8 from 105.6. This was a warning for stocks as the Dow Jones Industrial Average peaked at 14,198 in October 2007.

Let's look at a chart of the Conference Board Consumer Confidence Index, courtesy of dshort.com Advisor Perspectives.

Note how the Consumer Confidence Index plunged during the Great Recession along with stocks and that both bottomed in the first quarter of 2009.

The "Great Credit Crunch" continues, with confidence between 40 and 70 in 2011 and 2012, well below the 90-to-120 neutral range. Given this analysis, it is tough to justify continued new all-time highs in the retail stocks.

Following are profiles for seven retail -- or in Walt Disney's ( DIS) case, "partly retail" -- stocks that have tested all-time highs in June.

Bed Bath & Beyond ( BBBY) ($59.34) traded to an all-time high of $75.84 on June 19.

The stock plunged to $59.23 at Monday's low, down 21.9%, after the household-goods retailer issued a cautious outlook even as it reported better-than-expected first-quarter earnings.

The stock was taken to the woodshed after the company told investors it was using more coupons to entice consumers to shop, and that this policy was hurting profitability.

The stock's plunge from the all-time high was to less than its 200-day simple moving average at $63.49.

My semiannual value level is $55.81, with a quarterly pivot at $63.60 and a monthly risky level at $71.89. "Buy and trade" investors could have reduced long positions at $71.89 before the disappointment.

Walt Disney ($46.70) traded to an all-time high at $48.00 on June 19.

This stock remains overbought on its daily chart and is vulnerable to bad news. My annual pivots at $44.04 and $40.18 had been magnets during the first five months of 2012 and could be tested again.

Disney could still see another all-time high if the stock takes out my weekly pivot at $47.64. "Buy and trade" investors should consider entering good-'til-canceled limit orders to sell strength to my monthly risky level at $51.49.

Family Dollar Stores ( FDO) ($70.18) traded to an all-time high at $74.73 on June 14. If you look at the stock's monthly chart you see a parabolic bubble, which is hard to justify with consumer confidence this low.

If the stock closes at less than its 50-day simple moving average at $68.03, the risk is to the 200-day moving average at $59.50. My semiannual value level is $60.20 with weekly and quarterly pivots at $68.77 and $67.95, respectively, and a monthly pivot at $71.72. "Buy and trade" investors had the opportunity to book gains at my monthly pivot at $71.72.

Dollar Tree ( DLTR) ($109.54) traded to an all-time high at $113.64 on June 20. The monthly chart for DLTR also shows a parabolic bubble. The 50-day simple moving average is a support at $102.65. The 200-day lags at $88.52. My weekly and monthly pivots are $106.51 and $107.17, respectively.

TJX Companies ( TJX) ($42.44) is another retailer gone parabolic, setting an all-time high at $43.78 on June 21.

If the stock closes below its 50-day simple moving average at $41.56 the risk is to the 200-week moving average at $34.95.

Holding my weekly value level at $42.02 could yield another all-time high as my annual risky levels are $45.75 and $52.67, where "Buy and trade" profits are justified.

Under Armour ( UA) ($97.19) set an all-time high at $107.86 on June 19.

The stock closed below its 50-day simple moving average at $98.20 on Monday, which indicates risk to the 200-day at $85.33.

The company is too new to have annual levels, but my quarterly pivot at $104.94 provided a level at which "buy and trade" investors could have book profits. This week's value level is $95.80.

Whole Foods Market ( WFM) ($95.56) is another retail stock with a parabolic bubble formation on its monthly chart. A prior bubble for this stock peaked at $79.90 in December 2005.

The low in November 2008 was $7.04, so a popped bubble could happen again. The current bubble set a new all-time high at $96.96 last Friday with the 50-day simple moving average at $88.13. This week's value level is $92.64.

At the time of publication, Suttmeier had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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