Hermès' worst year since 1993 on collapsing China sales — short the luxury sector

Verdict: A credible China-luxury bear case on watch, not yet a trade

On a medium-term horizon, this is a coherent bear thesis on Chinese luxury demand that we would watch rather than act on today. The strongest support is LVMH's own management signal: the dividend was cut from $2.767 per share (2024) to $1.701 (2025) while net income fell about 28% from 2023 to 2025 — payout policy the board controls and chose not to defend. The strongest counterweight is the cash engine: free cash flow rose to €14.2B in FY2025 from €13.4B, and debt-to-equity improved to 0.54, so the balance-sheet-leg of a bear case is absent — while the China evidence rests on one Hermès news item from October 22, 2026, not LVMH's own current data, and H1 2026 fundamentals are unavailable. Meanwhile the compiled entry rules never fired across 1,236 daily bars in 60 months, are written as long trades despite a bearish thesis, and price sits one cent above the $87.00 support level. If LVMUY closes below $87.00 with trend and momentum filters still aligned — or if peer China data confirms weakness spreading beyond Hermès — the case becomes actionable; a reclaim of the $93.63 50-day EMA argues the trend has turned.

Trade now: waiting on a confirmed breakdown in LVMUY, not chasing it

The short answer: wait. The idea is a bearish, thesis-driven call on Chinese luxury demand (with LVMUY as the liquid US-listed proxy), but today's entry conditions are not met, and this is a watch-list setup, not a live signal. Two of the four entry rules are already satisfied — ADX at 39.7 confirms a strong trend and RSI at 47.1 is below 50 — but price has not confirmed a breakdown: the last close of $87.01 sits just above the nearest support level at $87.00, and the 50-day EMA at $93.63 is still above price rather than in the required configuration. Note also a wrinkle in the compiled rules: the entry is written as a long trade even though the thesis is bearish, so the mechanical setup does not yet faithfully express the short-side idea. We treat the research thesis and the trigger rules as separate questions; neither is ready to act on today. The horizon is the medium term (the exit rule allows up to 90 trading days in a position), but no holding period was specified in the idea itself. The pivotal condition is a daily close breaking below the $87.00 support with the trend filters aligned. The downside that matters: even if the thesis is right, entering before confirmation risks buying into a bounce off a support shelf — and this setup has produced zero entries across 1,236 daily bars over 60 months, meaning the thresholds are very hard to hit. The author has requested a bounded parameter search to make the setup evaluable, but no robust alternative setup was established (the sensitivity evaluation ran out of time budget), so the published thresholds are what we can watch. "Waiting" concretely means monitoring whether price closes below $87.00 with the trend and momentum filters still in place; until then, no position. One factual limitation to flag: the latest fundamental data for LVMUY (revenue, margins, cash flow) is unavailable in the current period, so the valuation side of this idea cannot be checked against fresh company numbers — the case rests on the sector demand narrative rather than measured LVMUY financials. ### Technical details Entry rule (EMA/ADX/RSI setup, daily bars, observed as of 2026-10-23 03:16 UTC): - Price above the 50-day EMA: not met — EMA is $93.63 vs last close $87.01 (price is $6.62 below the EMA; the rule as compiled wants EMA below price). - ADX (14) above 20: met — 39.7, indicating a strong established trend (ADX measures trend strength on a 0–100 scale). - RSI (14) below 50: met — 47.1, mildly bearish momentum (RSI runs 0–100; below 50 signals weaker recent buying pressure). - Close crossing below the nearest support level: not met — nearest support is $87.00 and the last close is $87.01, about 0.01% above the trigger. Exits if a position were ever opened: signal exit when RSI rises above 55 or after 90 bars; stop when price closes below the second support level (currently $86.00) or on a 2.0% unrealized loss; take profit at 4.0% or at the second support from above. With no entry triggered, no live reward:risk can be honestly computed — the 2% stop / 4% target geometry implies a fixed 2:1 ratio only once a trigger fires. Context for the move so far: the stock sits about 4.5% above its range low and 42.8% below its range high, and the trailing 12-month drawdown has reached 47.6%, so much of the bear case may already be priced in.

The Numbers Behind the Luxury Slowdown Are Already in the Filings

The bear case on the European luxury cluster is supported by two full years of deteriorating reported results at LVMH (LVMUY), the group bellwether, and by a news flow item confirming China weakness at Hermès per the Bloomberg segment of October 22, 2026. Note upfront: the accompanying trade rules did not trigger on any of 1,236 daily bars over the past 60 months, so this is a watch-list thesis rather than an active signal. ### Four years of eroding profitability at the bellwether LVMH's reported FY results show a steady slide: revenue fell from €86.2B (2023) to €84.7B (2024) to €80.8B (2025), roughly a 4.6% decline in 2025. Operating margin compressed from 26.4% (2023) to 23.1% (2024) to 21.9% (2025), and net margin from 17.6% to…

Scores

• Conviction score breakdown: 53
• Thesis support: 62
• Trade readiness: 35
• Risk quality: 40
• Trigger proximity: 80
• Fundamentals trend: 48

Watch items

• LVMUY — Daily close vs nearest support
• LVMUY — RSI (14)
• LVMUY — Price vs 50-day EMA
• LVMUY — ADX (14)