Bearish Bets: 3 Big Retailers, 3 Big Earnings Fails
Advanced Auto Parts Hits Reverse
Automotive retail has been hit or miss. The AutoZone ($AZO) posted good earnings recently, but not O’Reilly ($ORLY), which got hammered in the spring. Advance Auto Parts ($AAP) posted earnings yesterday and was poleaxed, with the stock falling more than 20% on heavy volume. This now sets up a scenario where the stock may continue falling, so a good short play opportunity.
The chart shows a vicious gap lower on heavy volume, a massive hole in the chart that may take weeks or months to fill. Moving average convergence divergence is on a sell signal and the Relative Strength Index, or RSI, plunged to oversold, which is not a buy signal). Price action, meanwhile, is bearish. We see a target down toward the January lows, let’s call it $38, so a nice 12% gain down from here. Put in a stop at $52 just in case.
Tough Times for Walmart
The largest retailer in the world just reported their quarterly earnings and raised a red flag to the markets. Walmart ($WMT), which usually thrives in good or bad times talked about a slowing consumer, which is quite alarming considering retail sales have been rather robust. As we head into the back to school shopping season we would expect this big retailer to perform well, but that is not the case. Target reported this week as well and said differently, perhaps they are taking share.
Regardless, the chart of Walmart is ugly, and has been for weeks. The stock peaked in May on lower volume and cracked lower following good earnings then but weak guidance. The downtrend channel is in place though, and the stock may bounce a little before resuming the new trend. MACD has rolled over to a sell signal and RSI is weak. The November lows are in sight, that is a good target at the $98 level, about 6% lower than current prices. Put in a stop at $110 just in case.
Dick’s Sporting Goods Breaks Good Support
There is nothing worse than a stock failing to hold good support, and that is what happened with Dick’s ($DKS) this week. The big sporting goods company got blasted this week on heavy volume and just cannot seem to catch a break to the upside. A trend of lower-highs, lower-lows defines the channel, a textbook definition of a downtrend.
MACD is on a double-sell signal, money flow is bearish and has been for weeks. Breaking the March support area of $185 is troublesome, and while this stock may soon rally back up there it might be another spot to short the stock. There are some targets for downside, long term in nature, and down to the $150 area. Let’s start a short there, and add more if the stock rallies. this is a very bearish chart that just cannot seem to find any buyers whatsoever. Put a stop in at $200.
At the time of publication, Lang had no position in any security mentioned.
