Retail is reversing.
The group has cooled off after hitting two-year highs on Tuesday, pressured by concerns around earnings season and some bearish analyst calls.
MKM Partners initiated coverage of Target on Thursday with a sell rating, citing five risks to the big-box chain's business, including "deteriorating customer satisfaction," "heavy overlap with Walmart" and "foot traffic underperformance." It is Target's only sell rating on Wall Street.
Citi analysts also made some calls, downgrading Victoria's Secret parent L Brands to sell from neutral after that company cut 15% of its corporate workforce, and upgrading American Eagle Outfitters to buy from neutral.
"Most retailers are focusing on two things," John Petrides, portfolio manager in Tocqueville Asset Management's wealth division, told CNBC's "Trading Nation" on Thursday. "One, making sure they have enough liquidity to ride out a fearful consumer for the next six months to a year, possibly, and also how do they grow and build their presence in the e-commerce world, because e-commerce is here to stay?"
Under Armour reported Friday that online sales helped curb its revenue declines in its fiscal second-quarter, adding fuel to the e-commerce case.
"Whatever trend we were moving into — more e-commerce sales in the retail space — has been multiplied by x factor because of Covid and stay-at-home," Petrides said. "It's a really tough world for retailers out there, and they have to find ways to reinvent themselves and to put as much excess capital as they can into building out their e-commerce channels."
In the same "Trading Nation" interview, Matt Maley, chief market strategist at Miller Tabak, said concerns around the strength of the consumer and the government's possible unemployment extension are two of the group's biggest obstacles.
"When we have this new unemployment benefit come up, it is going to pass, but if it's not the full $600 — even if it's $500 — that's a fairly significant decline on their weekly pay," Maley said, referring to the weekly supplement that expires Friday without a bipartisan agreement in Congress. "If it goes down to 400, obviously that's lower by a third. That's going to have an impact."
"The other thing is the coronavirus," he said. "If we get a second wave here in the fall or a third wave in the fall and winter in the U.S. and Europe, that's going to cause another big problem for the retailers."
Even so, one retail stock stood out to him on the charts.
"Target, if you look at the chart, looks pretty good," Maley said.
"It's formed an ascending triangle pattern. It's up at the top end of that pattern. And if it can break above 125.50, that's going to be very, very bullish for this stock," he said.
However, if the stock rolls over, MKM's call to sell may prove correct, Maley said.
"If it breaks below the lower end at its 50-day moving average — that'd be the 120 level — that'll be negative for the stock," he said. "But right now, the stock looks pretty good. If it breaks above that one level, this is one player that actually might do quite well."
Target shares closed up less than 1% at $124.58 on Thursday. They were flat in Friday's premarket session.
