Retail Stocks Showing Possible Consumer Retreat

By Mar 16, 2013, 11:56 AM Author's Blog  

Everyone knows that consumer spending keeps the economy running in the United States. If the consumer decreases their spending, the economy will usually come to an abrupt halt. Think about it, in 2008 when employers started to lay off workers the economy slowed down. Credit card lenders and banks also cut credit lines. This action by the large financial institutions also helped to cause a dramatic decline in the economy. Basically, when money is taken out of the hands of the U.S. consumer, the economy will slow down. After all, consumer spending accounts for roughly 70.0 percent of the gross domestic product in the United States. At the start of the new year the payroll tax cuts expired and everyone is seeing less take home money in their pay checks. Less discretionary income will make the consumer have no choice but to change the way they spend their money.

How can we tell when the U.S. consumer cuts back on spending? One of the best ways to figure out when the consumer is beginning to pullback on its spending habits is to follow the large leading retail stocks. One stock that is making a higher low on the daily chart is Costco Wholesale Corp (NASDAQ:COST). This stock had been a major winner in 2012, but now the stock is looking top heavy on the charts. It is still a strong stock and good company, but it now showing signs of slowing down in its price action. This stock still has some minor daily chart support around the $100.00 level in the near term. Should COST break that level with higher volume, then this stock could easily decline to $93.00 a share which is the next important support level.

Some other stocks that are making lower highs on the chart include Wal-Mart Stores Inc (NYSE:WMT), Bed Bath & Beyond Inc (NASDAQ:BBBY), Lululemon Athletica inc (NASDAQ:LULU), and Gap Inc (NYSE:GPS). All of these stocks have one thing in common, they have made lower highs on the chart. Lower highs on a chart are never a good sign for a stock. When lower highs occur in the leading retail stocks it is a sign of an economic slowdown by the U.S. consumer.

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