Just a week after consumer confidence beat analyst expectations, the narrative has completely flipped. Impeachment proceedings, Elizabeth Warren, and decade-low manufacturing numbers have rocked the market.
As a result, retail stocks got absolutely hammered by investors, even though they arguably shouldn’t have.
Nonetheless, the consumer-focused sectors (which include retail giants) now appear vastly overbought. Target (NYSE: TGT), a stock we recently featured, is teetering on the edge of collapse along with several other key stocks. Target posted highly encouraging earnings in late August, signaling to the market that there’s reason to be optimistic about the U.S. economy.
And in particular, the spending habits of consumers, who seem to be laden with disposable income these days.
But now, equities are tipping over, dumping out any goodwill generated over the last few weeks. Consumer cyclical stocks seemed immune from the late September selloffs until yesterday, when they began hemorrhaging value.
As of today, it’s only gotten worse.
That might be disappointing for market bulls, many of whom saw retail stocks as the last hope to push the market higher. For nimble traders, though, it’s just another opportunity to pocket some quick gains.
In the weekly candlestick chart above, you can see that Lowes Companies Inc. (NYSE: LOW), the famous home improvement store chain, has had an “up-and-down” 2019. That’s no surprise for LOW shareholders, though; the company’s stock has undulated back and forth since it went public.
However, it’s always done so while slowly trending upwards. For the first time since 2010, LOW’s recent highs are all coming in around the same price point. The first was back in September 2018, and the last two arrived in April and September of this year.
In doing so, LOW formed a double top (almost a triple top), which often precedes a trend reversal. LOW’s been on a long-term (albeit slow) uptrend since 2010.
It seems that finally, the stock is slowing down.
Now, it might not transition into a protracted downtrend – something that bears are hoping for. But that doesn’t mean LOW isn’t due for a significant drop.
The current weekly candlestick is trading below the last five candlestick bodies, the stochastics appear high (suggesting that LOW’s overbought), and we’ve got the aforementioned double top formation.
How much better can it get?
In this case, we set the trade trigger at $105.00, slightly below the current week’s low as well as the low of five weeks ago, as that’s currently serving as a level of key support.
Should LOW keep on dropping, it could easily fall to $92.00, where a double bottom was formed. Does that mean LOW will bounce back upwards after hitting $92.00? Possibly. It’d be great if it did, as we’d have a great opportunity to trade LOW’s uptrend reversal.
But even if it doesn’t, this is still shaping up to be an all-star bearish setup, even though retailers may have been unfairly punished in what’s looking like a market-wide, take no prisoners equity crunch.
