BALTIMORE (Stockpickr) -- 2014 has been a tough year for specialty retail stocks. Since the start of the year, the average retail name has slid more than 5.4%, versus 4.8% gains for the S&P 500. Simply put, owning retail has been hazardous to your portfolio's health for the last six months.
But that could be about to change.
We're seeing a major shift in leadership in June as the momentum names that fared so well in 2013 start coming back into favor this year. And retail is one of the sectors best-positioned to rally into the second half of the year.
So to figure out which specific retail names are worth trading this week, we're turning to the technicals.
For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, let's take a look at five technical setups worth trading now.
Up first on our list of retail trades is GameStop (GME), the mid-cap video game store chain. GME has had a rough run over the course of the last six months or so, underperforming the S&P by more than 30%. But that awful performance could be about to change. Here's what to look for in GameStop this summer.
Right now, GameStop is forming an ascending triangle bottom, a bullish price setup that's formed by a horizontal resistance level above shares at $44 and uptrending support to the downside. Basically, as GME bounces in between those two levels, it's getting squeezed closer and closer to a breakout above that $44 price ceiling. When that $44 resistance level gets taken out, it's time to be a buyer.
Momentum, measured by 14-day RSI, is the confirming indicator to look at in this stock. Our momentum gauge has been making higher lows, an indication that up-days in GME are overwhelming the down-days in this stock. Still, it's critical to wait for $44 to get exceeded before jumping into the GME trade.
Advance Auto Parts
Car parts retailer Advance Auto Parts (AAP) is showing traders the exact same setup right now. Like GameStop, AAP is forming an ascending triangle setup, in this case with resistance at $128. So, when shares take out that $128 high-water mark, it's time to be a buyer.
Why all the significance at $128? It all comes down to buyers and sellers. Price patterns are a good quick way to identify what's going on in the price action, but they're not the reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for AAP's stock.
The $128 resistance level is a price where there has been an excess of supply of shares; in other words, it's a spot where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $128 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. When it happens, I'd put a protective stop under the most recent swing low at $120.
Signet Jewelers (SIG) is another breakout trade to keep an eye on right now. Unlike most other retail names, though, Signet is enjoying some stellar upside action this year. Since January, shares of SIG are up more than 36%, beating the broad market by a wide margin. Now shares look ready for a second leg higher.
That's because Signet is currently forming a "rounding bottom" pattern, a price setup that indicates a gradual transition in control from sellers to buyers. The pattern's name is a pretty good description of how it looks on a chart. Even though SIG's rounding bottom came in at the top of its recent price range (not the bottom), the trading implications are just the same. The buy signal triggers on a move through our $108 price ceiling.
Shares of Signet are within grabbing distance of that $108 level this week. When the breakout happens, it makes sense to put a protective stop on the other side of the 50-day moving average. That level has been a good proxy for support in recent months.
Weingarten Realty Investors
You don't have to be an expert technical trader to figure out what's going on in shares of Weingarten Realty Investors (WRI) -- the setup in this $3.84 billion retail REIT is about as simple as they get. WRI has been a "buy the dips stock" since the calendar flipped to 2014, and this week, shares are showing us a buyable dip for the fifth time since January.
While WRI may not be a retail stock strictly speaking, its status as a retail landlord gives it enough exposure to stores to make it worth looking at today. And the chart is pretty hard to argue with: shares have been bouncing higher in an uptrending channel for the last five months. When it comes to trend channels, up is good and down is bad. It's really as simple as that. So with WRI moving up and to the right, it makes sense to buy this latest bounce in shares.
WRI's channel is bounded by a pair of parallel trend lines that have identified the high-probability range for this stock to stay within. As long as WRI stays above trend line support, the bullish trade remains in play.
Car dealership chain AutoNation (AN) caps off our list of retail trades this week. Like WRI, AutoNation is bouncing its way higher in a well-defined uptrending channel in 2014. Put another way, an ideal buying opportunity has come up for AN bulls every time this stock has bounced off of trend line support along the bottom of the channel. So, with shares testing that level for a third time this week, buyers should be getting ready to pounce.
Waiting for a meaningful bounce off of support is crucial for two big reasons: It's the spot where shares have the furthest to move up before they hit resistance, and it's also the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring AutoNation can actually still catch a bid along that line before you put your money on shares. We're seeing that bounce confirmed with yesterday's leg higher.
The 50-day moving average has been a good proxy for support for the last month; that's the spot to keep a mechanical stop if you decide to be a buyer here.
To see this week's trades in action, check out the Technical Setups for the Week portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.