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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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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