If Department Stores Could Talk, They Would Say,

Since the recent credit crisis unraveled, Department Stores have been falling fast. Many traders consider department stores to be a decent indicator of consumer health. Malls have become symbols of the institution of the American consumer, so it becomes easy to make a relationship between how well department stores are performing and how healthy consumer appetites are.

If we took this relationship between consumers and department stores at face value, then we would be in big trouble. Department stores are down across the board, and they are down big. Department store flagship JC Penney has lost nearly 30% since early-year highs. Sears Holdings have lost over 30%. In a situation like this, many traders will start bottom fishing, and buying in hopes of the stock making a grand about-face.

The Department Store group has a PowerRating (for Industries) of 6. From 1996-2006 industries with a PowerRating (for Industries) of 8 have achieved annualized returns of 15.15% based on 3-month historical returns. By contrast, industries with a PowerRating of 10 have an annualized return of 35.27% based on 3-month historical returns. A PowerRating of 6 is a mediocre rating, so it would be a good idea to refrain from major buying here, until we see confirmation of a sector-wide turnaround.

JC Penney (JCP@JCP | Quote | Chart | News | PowerRating) has a PowerRating (for Investors) of 6.

Sears Holding Corporation (SHLD@SHLD | Quote | Chart | News | PowerRating) has a PowerRating (for Investors) of 7.