Supergroup: Sterling weakness points to below 1,200p

Fashion retailer Supergroup (LON:SGP) could very well become one of the trendy proxies for those looking to short stocks harmed by the weakness of the Pound.

Although shares of Superdry fashion brand owner Supergroup managed to double from below 800p in 2014, for this year we have seen headwinds on both the fundamentals and the technicals. This has manifested itself in higher sourcing costs due to the weakness of Sterling, even though the company has offset this through hedging its exchange rate for over a year. Nevertheless, it could be that the company may regret the special dividend payout made earlier this summer, on the basis this cash could have been saved for a rainy day when/if Sterling goes down and stays down at the lower levels.

From a technical perspective it can be seen how the stock peaked out towards 1,600p in July/August, then lost the 50 day moving average, now at 1,520p, and now threatens to lose the 200 day line at 1,434p on a weekly close basis on Friday. If it does one would be concerned that a decline towards the next support zone down at sub 1,200p could be on its way for November. Indeed, only a swift recovery of the 50 day line would now be regarded as significant enough technically to delay the breakdown scenario.