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Electronics superstores in peril?

December 15th, 2011 · No Comments

Few interesting charts to chew on..

Commentary: Best Buy Co., Inc. (NYSE:BBY) reported earnings on Tuesday that sorely disappointed investors. The stock ended the day down over 15% on huge volume. Unfortunately for BBY investors, the slide only continues a decline that began in 2010 after BBY topped out near $49. BBY had been attempting to recover recently as it rebounded from the low $20’s over the past few months. As it attempted to form a bottom, it gradually rose to the high $20s. The $28-$29 level was acting as stiff resistance over the past few weeks and ultimately proved too hard to overcome for BBY. The next test will likely be of its 52-week lows near $22.

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With Best Buy’s dismal performance over the past several months, many market participants are questioning the future of brick and mortar electronics superstores and their having to compete with the online alternatives like Amazon, Inc. (Nasdaq:AMZN). The overhead in running the superstores is enormous and they have to compete with heavy online discounts. Many electronics retailers slid lower along with BBY and could be headed for more weakness. Radioshack Corporation (NYSE:RSH), for instance, sliced 7% lower on Tuesday and is testing the lower boundaries of its recent trading range. RSH has also been in a steady decline since mid-2010 and has lost more than half its value in that time. The key for RSH will be whether it can cling to support here near $10.50. If it breaks down from here, it could get ugly. (For more, see Technical Analysis: Support And Resistance.)

Conn ‘s, Inc. (Nasdaq:CONN) is a stock in this sector that has actually been performing very well over the past few months, although it comes on the heels of a ridiculous five-year decline that took the stock down from $45 to near $3. CONN had cleared its base in November and steadily worked its way higher. However, CONN had an interesting reaction to its own earnings report last week. CONN gapped sharply lower, but ended up recovering by the end of the day. It appeared that it CONN survived the scare, but the BBY report may have impacted CONN as well. The stock pulled back almost 8% on high volume after BBY reported and could be the final straw for longs in the stock.

HHGregg, Inc. (NYSE:HGG) is another stock in the group that has been performing quite well, but could be impacted by the BBY fallout. HGG had been in a steady correction since mid 2010 until forming a double bottom in August through October. It has been working on a tighter consolidation above that base for the past several weeks and now the question is whether it can separate itself from BBY. The $14 level may hold up as support on any weakness and would be an area to monitor. (For related reading, check out Trading Double Tops And Double Bottoms.)

The Bottom Line

The decline in BBY has certainly been disconcerting for investors, and its business model is coming under fire. Many are calling it a showroom for online retailers and it will be interesting to see if it can recover from the recent weakness. This group has an interesting diversity, with some stocks performing well and others bordering on disastrous. The question is whether the fallout from the BBY report will impact its peer’s longer term. CONN and HGG had been building momentum and it will be interesting to see if they can hold on to the recent strides they have made. (For more, see Analyzing Chart Patterns.)

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