Looking ‘ominous’ for beaten-down retail stocks: Technician

A string of dismal earnings and sales numbers has retail stocks struggling.

Despite some strong showings from a few companies like Wal-Mart, the retail ETF (XRT) is set to log its fifth-straight week of losses. And according to Instinet trader and technical analyst Frank Cappelleri, the worst could still be ahead for retailers.

Read MoreGood day in retail, but it's still eyeing longest weekly losing streak since '08

"Over the last 2½ years, it's traced out this pretty big and pretty bearish ominous pattern," he said Thursday on CNBC's "Trading Nation," referring to the XRT. "If it goes below that $39 level, the level it was last at in February of this year, we can see much lower points last seen maybe in late 2012."

A lot of the uncertainty comes from the outlook on U.S.consumers, according to Cappelleri. Consumer spending increased only at a 1.9 percent rate during the first quarter, leaving many retailers struggling to maintain sales leading into earnings season. Numbers improved in April as consumer spending rose to its highest in a year, but the boost was mostly fueled by online retailers instead of the traditional big names. Amazon is currently the ETF's biggest holding.

While Cappelleri says the charts look bearish, the fundamentals look decent, according to S&P Investment Advisory Chief Investment Officer Erin Gibbs.

"Some of these stocks are really starting to look beaten up, some of them are down as much as 80 percent, you're pretty much buying the bottom," Gibbs said Thursday on "Trading Nation." "But we're talking one year out for a lot of these companies where it's a long-term hold. So on the short term I wouldn't get in necessarily right now, [but] longer term I think there's some real opportunities."

Gibbs believes that many of retail's struggling names can pick themselves back up, but they may have to downsize in order to do so.

"[Retailers] need a quarter to close a couple stores and shrink their footprints and turn around, and those are the times when you can really make some great deals," she said.


Trades to Watch

Trader Bios


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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more