INVESTING: The bearish American shopper will punish retail stocks

I don’t like to shop. I do know, however, that I am in the tiny minority in this regard. We’ve elevated shopping in this country to a level that probably ranks higher in importance than family, religion and health. The American consumer is such a force that we make up 20 percent of global GDP. That’s right, for the entire world!

I should think, then, that slowdowns announced by companies like Wal-Mart and Target would be headline news. Of all the issues confronting the world right now, few are more important than how the American consumer performs in the next six months. We already know global equities are in a bear market. How deep this downtrend extends itself could be partly dependent on how much shopping we do in the intermediate term.

Before we start breaking into the stocks, understand this: There isn’t a single retail company I want to own for the next three to six months. If you try to tell me you have this one or that one that is bucking the trend, I’ll tell you to wait. It’s not a question of if they’ll come for you, it’s a question of when. Bear markets take everything down. Now, if you’re interested in relative outperformance on the downside, be my guest. Personally, I don’t like the idea of losing just an arm and a leg.

In late May, Wal-Mart was acting funny. The stock was rallying despite generally weak market conditions. It got up to $50 a share, but couldn’t take out that November $51 high. Bad sign. Then, it spent June stalling for time until it got whacked in mid-July. Finally, the stock fell all the way to the September 2005 low before rebounding a little.

I think the September low will be taken out soon. If it happens, good night! The next active level of support for the stock isn’t until $33. And if you doubt my analysis, here’s a quick lesson in supply and demand. The stock fell to $42.31 in September. Obviously, that was not a level that adequately stoked demand, otherwise we wouldn’t be back here already. If $42.31 wasn’t low enough to attract demand, then even lower prices are required to do so. Keep it simple, folks.

Let’s look at Target, Home Depot and Lowes now. Target is being left for dead as we speak. There is a lot more support on the way down for this thing than Wal-Mart, but down is still down. Home Depot is still a widely owned stock, and a favorite of the “fix-it” guys in my ‘hood. From the look of the stock, though, they might not have as much to fix lately. Fortunately for Home Depot, the stock, which was at $33 last week, has a lot of support between $30 and $32. If it breaks $30, as I assume it will before the year is out, it could fall all the way to $20. Not pretty. Lowes is probably more interesting than the rest of the crop because it didn’t get hurt much in the last bear market. But don’t be surprised if the stock gets hammered (pun intended).

I am not out here proclaiming the death of the American consumer. I’m just looking at the charts, and I don’t see positive things. It seems like higher oil prices and interest rates are causing people to make decisions about how they spend their money. The charts of these retailers are suggesting that for the rest of this year at least, people are choosing to gas up their cars instead of making other purchases.