Technical Analysis: Retailers continue to buck the FTSE

10th Jul 2009 15:23

Despite indifferent retail sales data in the past few months the retail sector continues to buck the market.Over the past 30 days retailers like Mothercare, Marks and Spencer and Home Retail Group have made significant gains, in excess of 5% and when comparing the retail sector to the FTSE100 over the past few weeks it continues to outperform the benchmark index, dropping just over 5% from its highs against a drop of nearly 10% in the FTSE100.The key question is how long can this outperformance last? Since early March the sector has been trading in a steady uptrend, but recently it has started to trade sideways, with each subsequent rally lacking conviction. The line, from a chart point of view lies at 1,380, and a break here could cause some profit taking to kick in and push the sector lower to its 3 month lows around 1,323. Marks and Spencer has been a key factor in this retail revival over the past month with a rise of over 9% in the last 30 day period, despite the fact that it cut its dividend. Sentiment towards the sector has undoubtedly been buoyed over the past couple of days with a broker upgrade for Marks from Citigroup. However, it is difficult to see how much more upside there could be in the short term, with the stock struggling to find its way back through its 30 day highs around 321.50p. While stock markets continue to remain under pressure and while retail sales continues to remain under pressure then margins will continue to be squeezed. Mothercare is currently trading at 10 year highs at 505p, with forecasts projecting increased revenues, a P/E of 15 times and increased EPS growth. Since November last year the share price has gone from 259.50p to be over 90% higher. The price chart would seem to suggest that the up move of the last few months may be getting a little over extended. The price has moved a long way from its 200 day moving average, too far to be sustainable in the long term. At some point the price will start to correct back to its mean, and a break below its support line currently at 471p would be the first evidence that this process is beginning. Home Retail is also sitting near 18 month highs between 280p and 290p and needs to break above these levels to push on.If the FTSE continues to fall and drops below 4,000 in the coming weeks, then at some point the retail sector, which has enjoyed a very good six months, could start to drift back.For periodic TA updates follow me on TwitterAlso read my Investors Guide to Technical Analysis and Level 2