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The 'writing is on the wall' for this sector: Trader

Call it a pre-winter meltdown.

The bout of unseasonably warm weather has melted shares of retailers this week — just as many are set to report earnings. Shares of Macy's, Kohl's and Nordstrom are down roughly 4 percent in the last two sessions, and some traders warn that the bloodbath could continue heading into the end of the year.

"I think the writing is on the wall here," David Seaburg told CNBC's "Trading Nation" on Monday. "I don't think there is anywhere to hide in retail right now — especially in department stores."

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Seaburg expects the big department stores to not only disappoint on earnings later this week, but also provide weak guidance, which will send the stocks into a downward spiral. "Department stores have an inventory issue, and mall traffic is down," Cowen & Co.'s head of sales trading said. "We're looking at a scenario where these stocks will sell off on earnings, sell off on guidance and stay low for a relatively long period of time."

He said the only "safe" stocks in the retail space are Amazon, Nike and Under Armor. "Outside of that, it's lights out for this space," he said.

Macy's kicks off the department store reports before Wednesday's opening bell. Analysts polled by FactSet are expecting the company to earn 55 cents a share, 6 cents less than last year, on $6 billion in revenue.

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"We are staying away from the retail space," technical analyst Ari Wald said Monday. "Although the XRT has support at $44, what keeps us away is its weakness relative to the market." The XRT, the ETF that tracks retail stocks, has broadly underperformed the market: down nearly 6 percent while the S&P 500 is up 1 percent in 2015. "It just hasn't participated in this rally as much as some of the other broad market indexes have," added Oppenheimer's chief market technician.


Wald expects the retail space to continue to underperform the broader market, especially heading into the holiday season.

Shares of Macy's, Kohl's and Nordstrom were up more then 1½ percent Tuesday afternoon.

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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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