This is definitely a market warning signal!
Since this occurred so soon after a new high, it triggered a Titanic Syndrome signal. Ignoring the silly names, the Titanic and Hindenburg Omen signals highlight unusual market conditions when breadth is not necessarily confirming the rosy outlook given by a rising market index.
During the past 30 days, the Nasdaq has now recorded 6 of these signals, the most since last November. Other than a very brief dip, that was a horribly failed warning sign of future market weakness. But the other signals were mostly successful during this bull market.
It’s important to mention that at other times in the past 30 years, like in 2000 and 2007, the Nasdaq saw clusters of 15 or more signals in a 30-day period. So currently, the total is still relatively low compared to those peaks.
Rating agency Fitch lists 8 retail companies that it thinks will be bust within the next 12 months…and Sears is at the top!
Fitch’s expectation of increasing retail defaults stems from increased discounter (including off-price and fast-fashion apparel) and online penetration, and shifts in consumer spending toward services and experiences. All of these factors have created a highly competitive retail environment and accelerated mall traffic declines. Retailers have also suffered from the ebb and flow of brand popularity. Negative comparable store sales and fixed-cost deleverage have led to negative cash flow, tight liquidity and unsustainable capital structures.
Going back to Payless, the company was listed on Fitch’s Loans of Concern list, which is a compilation of issuers with a significant risk of default within the next 12 months. And, just to make the tracking of future defaults easier, Fitch also provided the list of eight other retailers with term loan debt totaling nearly $6 billion, which are also its concern list, and are most likely to be in default in the not too distant future. They are as follows:
- Sears Holdings Corp (roughly $2.5 billion);
- 99 Cents Only Stores LLC;
- Charming Charlie LLC;
- Gymboree Corp.;
- Nine West Holdings Inc.;
- NYDJ Apparel LLC;
- rue21, Inc.; and
- True Religion Apparel Inc.
Sources: ZeroHedge, Fitch