Trading Nation

Department stores may be having a bad 'Kodak moment,' one trader warns

Buy 'discounters' and sell department stores, says strategist

Big retailers are getting in the check-out line to release earnings this week.

Home Depot, Kohl's, Nordstrom, Target and some other big retail names will be reporting results this week. Those reports have a tinge of uncertainty following a rough earnings miss by Macy's and a big beat by Walmart.

Boris Schlossberg, managing director at BK asset management, says Macy's and Walmart painted a "tale of two cities" last week.

"You buy discounters, and you sell department stores," Schlossberg said on CNBC's "Trading Nation" on Friday. "Department stores are actually having a 'Kodak' moment, and not in a very good way. … They're getting completely disintermediated as we go forward."

Craig Johnson, chief market technician at Piper Jaffray, agrees the industry is at a pivotal moment.

"Clearly, retail's not on trend at this point in time, and it looks like we're going to have more close-out sales ahead. If you look at [the XRT retail ETF], it's trailed the S&P by about 20% year to date."

The equal-weighted XRT ETF, which holds Amazon as well as the major retailers, is down nearly 6% this year.

"Support here at these levels needs to hold. If it doesn't you could be coming back and retesting the lows you'd see back in 2007," said Johnson.

One name that stands out to Johnson is TJ Maxx parent TJX Companies, which reports earnings on Tuesday.

"This particular stock has tried to break out three times and failed. At this point in time, $47 is the key level to hold. If it doesn't hold, next support is going to come in around $45, so that's about 12% lower than where we are, doesn't look like a great risk/reward setup," said Johnson.

Schlossberg says he actually prefers TJ Maxx when put up against another name like Nordstrom, but also expresses concern ahead of this week's big earnings reports.

"Housing has been remarkably bad compared to where the rates are, where unemployment is, where wages are, and so I'm very weary of Home Depot and Lowe's. For Home Depot, at best, I would probably sell the 195 puts just to establish a position if it drops, but I would not be chasing any trade here on the retail side."

Home Depot and Lowe's have had wildly different years. While Home Depot has increased 19% in 2019, Lowe's is up just 2%. Home Depot releases earnings on Tuesday, and Lowe's on Wednesday.