Maybe there’s not quite as much money swirling around in the affluent pocketbooks as we have hoped…

Luxury Retail has been one of my favorite industries for picking short opportunities this month.  In the View From The Turret two weeks ago, I mentioned that I would be watching Tiffany & Co. (TIF) and Sotheby’s (BID) for potential short entries as high-end retailers faced both fundamental challenges and the stocks had broken their primary uptrends which had been in place since last spring.

Today, we saw particular weakness in Sotheby’s due of all things to a 104 year old painting by Claude Monet…

Wednesday evening, Sotheby’s largest competitor (Christie’s) held a prominent auction with a number of rare and very valuable paintings available for sale.  As it turns out, the sale didn’t exactly go as planned.

The painting by Monet was expected to fetch $60 million. However, either the painting didn’t meet up with buyer’s tastes, or the market for high-priced antique paintings is fairly weak.  The painting failed to sell, igniting a significant amount of uncertainty for investors who had been counting on strong spending from affluent consumers.

Shares of Sotheby’s gave up more than 8% in trading on Thursday, closing below support and also taking out the 200 EMA.  Volume was the highest seen so far this year as investors all hit the exits at once.

The weak auction shouldn’t be too much of a surprise.  We have seen retail sales figures continue to show weakness and the luxury area hasn’t been particularly strong.  BID is now too extended to enter a short trade at this point, but with the break of support and the high volume, I would feel confident adding to a position if we get a reflex bounce in the next couple of weeks.

More importantly, the action indicates that the consumer weakness is very broad and encompasses the low and high end of the retail food chain.  Bounces should be sold into and I’m willing to add more exposure to my high-end retail shorts when the patterns are attractive.