Technical Analysis: Retailers paring gains

15th Jun 2009 14:09

Last week's disappointing retail sales figures for May which showed a 0.8% dip in like for like sales, has prompted some profit-taking in the general retail sector after several months of significant gains. The sector has had a good run since the beginning of the year, rising over 40%, however it has only made back less than 38% of its losses from its peaks in 2007, when it was trading near 2,800. There continue to be bright spots in the retail sector, Halfords for example, reporting better than expected profits, despite lower like for like sales. This however, can be attributed to people cycling more and spending money on their existing cars as opposed to buying new ones. The majority of retailers will continue to struggle to maintain margins, as consumers re-trench in the face of increased job insecurity. The general retail sector has drifted back from its May highs, and for most of last week traded sideways. The risk now is for a test down towards minor trend line support at 1,345, a break of which could open up a test towards longer term support currently around 1,146.Marks and Spencer, the bellwether of the UK retail sector has failed to recover back above 300p after its decision to cut its dividend in mid May sent it down through this key support level a couple of weeks ago. While below this level, the charts suggest that the risk is to the downside and the long term support line, currently around 264p.Home Retail - the owners of Argos and Homebase, despite making significant gains over the past 6 months, has continued over the past month to try and progress above its long term resistance line around 290p, but has so far been unable to do so. As long as the resistance at 290p holds on the topside, the risk for a test back to support at 230p is always present. Kingfisher- has managed to hold onto to its gains for the last 6 months, making marginal new highs above 200p, but has since drifted back below its previous highs at 193.60p. There is a minor support line around the 185p level which if broken could trigger a move towards the May lows of 170p. Next: the outperformer of the retail sector of the last six months its share price has pretty much doubled off its 2008 lows. However it has shown some signs of weakness since its May highs of 1,698p, dropping back to 1,403p before finding a short term base. Since then it has struggled to maintain gains above 1,560p failing there on at least 3 occasions in June.This continued failure to overcome this short term resistance, could well trigger a test of the following support levels, currently around 1,446p and behind that at 1,263p.The past six months have seen a significant recovery in the retail sector, which has been hit hard by the collapse in consumer confidence, rising unemployment and the collapse of several household names. Certainly there has been some evidence of what some commentators call "green shoots" over the past few weeks. The danger is that these shoots could turn out to be a case of "green shoots and leaves" as the sector drifts back towards its longer term support lines. For periodic TA updates follow me on TwitterAlso read my Investors Guide to Technical Analysis and Level 2