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Crushed by Cotton

By Raghu Gullapalli, contributing writer,

Last week was very rocky for clothing retailers, Ralph Lauren, Aeropostale and almost cataclysmic for the Gap.

The Gap (GPS), which is the 800 pound gorilla in the clothing retail space, presented poor earnings and cut its outlook for the rest of the year. During their conference call, it became clear that the retailer has been having a hard time managing the margin squeeze caused by the spike in
commodity prices, particularly cotton. In addition the company experienced weaker sales, which has been only exacerbated by the high cost of oil. The stock traded down $4.07 to $19.22. The stock is trading below its 55 and 210 day moving averages and it is unlikely to break this new downtrend without a significant catalyst from the larger markets. The short-term stop is at $18.61 and the long-term stop is at $17.84.

News of the Gap, was compounded by the poor results of Aeropostale (ARO). The teen retailer’s guidance for the quarter fell well short of market expectations amid dropping sales and the afore mentioned rise in rawmaterial costs. On Friday ARO was down $3.04 at $18.30. It is well below its 55 and 210 day moving averages. And will more than likely need a significant market catalyst for that to change in the near term. has the short-term stop at $16.40 and the long-term stop is at $15.68

This news created waves in the market as other apparel companies, also affected by the same rise in cotton prices saw their stock plummet as much as 5%. Polo Ralph Lauren (RL) which has earnings on May 25th  dropped precipitously, but is being supported above its 55day moving average.  SmartStops has the short-term stop at $126.17 and the long-term stop at $123.51.

Fortunately this news has not caused the SPDR S&P Retail ETF (XRT), to weaken significantly. It is still being supported by the 55 day moving average and is well above its 210 day moving average. SmartStops has the short-term stop of the ETF at $51.60 and the long-term stop at $50.74

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