At this point in time, the retail segment of the U.S. economy, as measured by the SPDR S&P Retail ETF (XRT), is trading at a potential inflection point. Taking a look at the chart, you’ll notice that the price of the ETF is currently testing the long-term support of an ascending trendline (blue dotted line) and its 200-day moving average (red line). Bullish traders are watching closely for a bounce off of these key levels similar to what has happened many times over the past few years. It is extremely important to note here that at a sustained close below these levels will trigger a long-term downtrend in the sector and could be area of the market that leads others lower. Astute traders will want to analyze the key holdings of the ETF for clues as to whether the sector is setting up for a move lower. (For more information, see: Market Reversals And How To Spot Them.)

Analyzing Retail Stocks

As previously mentioned, one of the best ways to get a better idea of whether the retail sector is in for a major correction is to analyze the key holdings of a major ETF such as XRT. For those who don’t follow this ETF, the top five holdings as of July 25, 2014 are shown in the table below:

Company

Weighting (%)

GameStop Corp. (GME)

1.23%

Lithia Motors Inc. (LAD)

1.22%

Petsmart Inc. (PETM)

1.20%

SUPERVALU Inc. (SVU)

1.16%

Land’s End Inc. (LE)

1.15%

Taking a look at the chart of GameStop, which is the largest holding of XRT, you’ll see that the bulls have recently managed to send the price above the resistance of the 200-day moving average. Notice how this area was too much for the bulls when they tried to send the price higher in April. Traders will keep a bullish outlook on this stock until the price closes back below the 200-day moving average ($42.19). (For more, check out: Support And Resistance Basics.)

A Bullish Recovery

Taking a look at the chart of PetSmart Inc. you’ll notice that it looks similar to GME shown above. The price of PETM also failed to regain the 200-day moving average early in the year, but recent talk of a potential leveraged buyback has been enough for the bulls to send the price back above the resistance. As was the case shown above, traders will likely hold a bullish outlook until the price closes back below the 200-day moving average ($67.16).

Strong Moves Higher

Taking a look at the charts of LAD and LE Shown below, you’ll see that they are both trading near 52-week highs. The lack of overhead resistance on both charts suggests that the prices of these stocks could be heading over of the coming months – a bullish signal of the overarching sector.

The Bottom Line

The chart of the SPDR S&P Retail ETF, which is a key barometer of the U.S. retail sector, is currently trading near an influential level of support and resistance. A close below its 200-day moving average and ascending trendline would suggest that the sector is likely to experience a prolonged downtrend. By analyzing the key holdings of the fund, we noted that the underlying prices are all trading within bullish chart setups. Traders will want to continually monitor the nearby 200-day moving averages of GME and PETM because they are at risk of being pushed lower by these levels as was case for both earlier in the year. For now, the bullish positions of GME and PETM combined with even stronger setups on the charts of LE and LAD suggest that the retail sector is likely to resume the uptrend – at least for over the short term. (For more, check out Analyzing Retail Stocks)

At the time of writing the author did not own shares of the companies or ETF mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  2. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares US Oil&Gas Explor&Prodtn

    Learn about the iShares U.S. Oil & Gas Exploration & Production ETF, which provides an efficient way to invest in the exploration and production sector.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI KLD 400 Social

    Find out about the iShares MSCI KLD 400 Social exchange-traded fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Agency Bond

    Find out about the iShares Agency Bond exchange-traded fund, and explore detailed analysis of the ETF that tracks U.S. government agency securities.
  7. Mutual Funds & ETFs

    ETF Analysis: Guggenheim BulletShrs 2018 HY CorpBd

    Find out about the Guggenheim BulletShares 2018 High Yield Corporate Bond ETF, and get information about this ETF that focuses on high-yield corporate bonds.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares DWA SmallCap Momentum

    Find out about the PowerShares DWA SmallCap Momentum Portfolio ETF, and explore detailed analysis the fund's characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree Bloomberg US Dllr Bullish

    Explore an analysis of information on the WisdomTree Bloomberg U.S. Dollar Bullish Fund, a currency ETF that tracks the overall performance of the U.S. dollar.
  10. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Fast Fashion

    Definition of "fast fashion."
  3. Duty Free

    Goods that international travelers can purchase without paying ...
  4. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  5. Online-To-Offline Commerce

    A business strategy that draws potential customers from online ...
  6. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!