Is this a false dawn for retailers?

Retail shares have been energised by the vaccine news, enjoying a healthy rally from the beginning of the month. While the UK lockdown ends next week, and shops will reopen, there are concerns that even with a good Christmas, much of the good news is already priced in.

The situation is improving from where it was earlier in the year, but spending overall is still well down on the highs of 2019. In addition, as the second chart shows, the shift to online continues – while consumers are spending more, a bigger chunk of it goes online and not to high street stores.

The continuation of lockdown will not have helped matters, and it looks like a permanent shift away from high street sales has taken place. Low footfall and poor sales, and the ability to browse in store but then buy online have devastated traditional retailers.

For investors looking at retailers now, the question will be whether the recent gains can be sustained, with share prices perhaps weakening a touch before continuing to move higher, or whether the next move is down as reality bites once again.

Marks & Spencer

Marks & Spencer is a tale of two divisions, one successful, the other arguably in permanent decline. Both provide around £230 million in operating profits, but the food division is twice the size. M&S has managed to defend its niche food unit from competitors, and its partnership with Ocado gives it an additional string to its bow. But given investors still perceive it as a fashion retailer it will be hard for the stock to weather a renewed decline in clothing sales.

The price has managed to clear the 120p area that marked the peak in June and August, and after rallying to 140p has dropped back towards this zone as possible support. A reversal back below 120p would be bearish, but for now we should give the bull case the benefit of the doubt – momentum still lies with the buyers it appears, and continued price action above 130p reinforces the bull case.

Next

Next is the great comeback kid of the sector. From 2009 until 2015 it just went up and up, fuelled by its mastery of online sales as well as its presence on the high street. But over the past five years it has struggled, falling sharply three times. As concerns about the UK economy build, first regarding Brexit and now around consumer spending, the shares have repeatedly fallen, but each time the buyers come in to snap up a bargain. After all, even with the high street business facing harder times, Next continues to do well online. Buying down around £35 has proven to be a successful move twice in four years.

But with the price now back near the peak of £70, above which gains are hard to sustain, can Next find a new motor for further rallies? To provide proof of a price breakout, we will need to see a push through £72. Meanwhile, a break back below £60 would spell another potential pullback, although it is unlikely to be as dramatic as earlier in the year.

Superdry

Steep discounting has helped Superdry to recover, but it is now at a make or break point, as the weekly chart shows. A long-term downtrend is firmly in place from the 2018 highs, the stock having been a miserable performer over that timeframe. The rebound from the March lows has been impressive, but now that sales have rebounded the company needs to find a new catalyst if we are to avoid seeing a lower high created on the weekly chart.

In the short term, a break below 240p would signal a loss of trendline support seen throughout October and November, and while further support could come into play down towards 150p, a rolling over of weekly MACD and/or stochastics would seem to give further weight to the bearish case.

Boohoo.com

Boohoo has seesawed violently since March, as the bull case for online retailers collided with the ongoing investigations into the firm’s supply chains. It has continued to trade within a rough wedge formation on the daily chart, with higher lows contrasting with lower highs in June and September. The latest rally has seen the price clear the 50-, 100- and 200-day SMAs, and further gains target trendline resistance towards 375p. Then we will find out if the wedge will continue to hold, or if a breakout to the upside finally develops.