The stock: Reitmans (Canada) Ltd. (RET.A-TSX)
Recent price: $18.57
TREND
The summer holiday has come to a close; the kids are back at school. This is an important time of the year for retailers as they ramp up toward a hopeful fourth-quarter holiday bonanza. That is the expectation, in good times and bad. The question for investors is whether those expectations will be met. Persistent high unemployment south of the border has handicapped the sector and U.S. retail stocks have stumbled through the third quarter, although the group's rally last week showed there is a faint hope for a better close to the year.
Some investors are betting on more positive economic news ahead for the U.S. consumer and are bolstered by encouraging same-store August sales reported by select names. Many retailers either met or beat expectations, thanks in part to discounting and sales tax incentives, firing up investor optimism and helping retail stocks advance 5 per cent last week - outperforming the broad market's move in healthy fashion.
Apparel stocks Nordstrom Inc., Ann Taylor Stores Corp., and Saks Inc. all made big moves. So did Amazon.com Inc. and Pier 1 Imports Inc.. Even shares of troubled American Apparel Inc. surged 29 per cent to rise above $1. However, the price trend of many of these stocks remains bearish, and the broader retail sector represented in the SPDR Retail exchange-traded fund is categorized as Stock Trends Bearish, too.
This column suggested the sector might rebound from a slip back in the early days of May, but that advice proved fruitless as retailers were forced to reckon with the truth: This is a weak U.S. economic recovery. Four months later the current spark of life in the group, amid a still-frail employment picture, should elicit little confidence in taking a new long position in this group.
The number of Canadian apparel retailers and suppliers is limited but the message is equal parts caution for those trading on the Toronto exchange. Lululemon Athletica Inc. and Gildan Activewear Inc. managed to maintain their bullish trends through much of the summer, but have fallen to Stock Trends Weak Bullish in recent weeks. Le Château, another prominent Canadian apparel retailer, is in a bearish trend - one that has mirrored the specialty clothing retailers in the U.S. Investors should not be fooled by bold rallies in this bearish environment.
THE TRADE
Although its stock has performed well since turning Stock Trends Bullish in the second quarter of last year, Canada's largest retailer of ladies fashion, Reitmans, is not immune to the economic uncertainty. Signs of withering support for its bullish trend showed in thin August trading volume after shares reached a 52-week high at the end of July. The stock slipped enough to be categorized as Stock Trends Weak Bullish last week, signifying that the share price has dipped below the 13-week moving average trend line support.
Sometimes this trend indicator alerts market timing shareholders to a possible sell situation. The company did report upbeat second-quarter earnings last week, but clearly the market was not stirred enough by the positive results. The stock dropped 5 per cent - this in the same week that the S&P/TSX Consumer Discretionary index advanced 4 per cent and U.S. retail stocks shined. The stock is now underperforming the broad market - measured by its 13-week relative strength indicator - for the first time since the spring. Investors are not expecting good things ahead.
THE UPSIDE
The share price stands to lose another 5 per cent to the next support level near $17.50. However, a 15-per-cent skid to the area of the March low is a risk if the Canadian retail sector fizzles in the fourth quarter.
THE DOWNSIDE
Abandoning a dividend-paying stock, currently yielding 4.3 per cent, for the sake of market timing capital gains may be rash foolishness for long-term shareholders. A quick share price recovery above $19 would quell a jittery sell trigger finger.