Food retailer pointing investors to the exit

The Stock: Empire Co. Ltd.

Recent price: $53

The Trend

The entry of U.S. retailers into the Canadian marketplace is exciting news for consumers, but it also puts pressure on domestic retail stocks.

Target Corp.'s long-anticipated move north of the border has already squeezed the share prices of Canadian Tire, down 7 per cent in January, and Reitmans (Canada), which dropped 5 per cent last month. Target stores won't open for a while, but investors know the implications for the market share, profits and share prices of domestic retailers.

Meanwhile, Wal-Mart Canada's plan to build more superstores has shaken shareholders of Canadian food stores. Loblaw Cos. Ltd. is feeling the tremors, as is Metro Inc. - its shares down almost 10 per cent from their peak three months ago. Investors should take note: The expiration date of last year's grocery store bull trend has passed.

The Trade

Most of these Stock Trends columns focus on buying opportunities, but some times it is possible to feature stocks that are pointing investors to the exit. Empire Co., operator of Sobeys and other food retail banners, was profiled as a "buy" here at the end of 2009 when it was in the early stages of a new bullish trend. Its stock moved from the $46 level to eventually peak just a penny shy of $60 in late November. However, since hitting its 52-week high Empire's stock has underperformed the broader TSX market for all but one week. The current Stock Trends Weak Bullish category, in place since the New Year, indicates that trend-following shareholders should be ready for checkout.

The Upside

The immediate downside risk is a slip to the $50 level, a possible price support level. But the relative weakness of food store stocks may well persist for a longer period. Rotating to bullish trending sectors will deliver better results.

The Downside

Although market timers like to celebrate their success, there are almost always lost profits on the table. Those willing to risk waiting to sell on strength might wait on a rally in the short-term, perhaps sending the stock back above the $56 area, to regain some of the value lost since November.

Skot Kortje has been analyzing stock market trends for 15 years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to Stocktrends.ca