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This stock could see steeper losses

Talking Numbers

Shares of Sears Holdings plunged more than 7 percent Thursday after the company reported a wider-than-expected second-quarter loss. This marks the ninth straight loss for the struggling retailer.

“Our second-quarter earnings are unacceptable,” said Sears CEO Edward Lampert on a conference call with shareholders. “We are taking steps to address our performance in several levels, including reducing costs, investing the acceleration of our transformation, rationalizing our physical footprint to focus on our better performing stores and markets, and improving our pricing and promotional design to yield higher gross margins.”

The stock is now down 32 percent on the year, but are there any signs of a turnaround?

“This is not a store you want to own,” said CNBC retail analyst Stacey Widlitz. “[Sears] is basically selling off all of its assets in order to pay for what they are calling a transformation, but the transformation is not happening. They’ve underinvested in their stores over time. They don’t do destination anymore, people don’t do one-stop shopping anymore. Their margins are under intense pressure in order to get sales moving and they are burning massive amounts of cash.”

The short term Sears chart shows a bearish descending triangle.

Richard Ross of Auerbach Grayson agreed with Widlitz that Sears is not a smart investment. “Buying weak stocks in weak sectors is not a strong play,” he said. “Sell the stock now, and save yourself some money.”

The long-term Sears chart shows downside to $21.

On a nine-month chart, Ross pointed out that the stock has now broken below a bearish descending triangle, a technical indicator that helped him to project a measured downside target of $25 per share.
But according to Ross, the company’s longer-term chart is even more troubling. “You can see that double bottom around $21 [per share]. I think we could revisit that and perhaps go lower from there.”