This week has been busy for retailer earnings, and thanks to a lot of less-than-favorable numbers, the SPDR S&P Retail (ETF) (NYSEARCA:XRT) is continuing a three-week losing streak. So far it’s down more than 3.5% on the week, and it’ll likely get worse today.
Also disconcerting: Despite how oversold the XRT looks right now, the intermediate-term trend still is lower.
First it was Macy’s, Inc. (NYSE:M). Then it was Kohl’s Corporation (NYSE:KSS). Then Nordstrom, Inc. (NYSE:JWN). It’s been weak result after weak result.
For what it’s worth, this is simply confirmation of what we’ve been witnessing for the past 12 months, which is slowing economic growth and corporate profits. It’s nothing new, but thanks to a sharp multi-month bounce off the February lows, investors seem to have forgotten this underlying trend.
Keep in mind that while there were technical and structural reasons for the February-April rally in stocks, a good part of it was also driven by a falling dollar and corporate stock buybacks. Ultimately, however, economic realities cannot be bent too long until they come home to roost, and retailers’ earnings were simply a reminder of this.
Though, part of the weakness is also structural, as more sales continue to go to e-tailers such as Amazon.com, Inc. (NASDAQ:AMZN).
XRT ETF Charts
On the multiyear weekly chart, we see that the XRT ETF last December began breaking below its 2009 support line. The bounce off the February lows in March had reached the underbelly of this former support line again and then began acting as resistance. This week, the ETF is continuing the rejection of the former support line, and we are also seeing the yellow 50-week moving average break below the 100-week moving average.
From this perspective, we can expect a retest of the February lows for the XRT, with the high $30s as a next downside target.
On the daily chart, the XRT is increasingly looking oversold in the near-term and has also reached a horizontal line of reference that previously had acted as support and resistance off and on.
Active investors could look to initiate a partial short position here or buy put spreads with a few months left until expiration and look to add on any oversold bounces, using the high $30s as a next downside target.
Any sharp bullish reversal on a weekly closing basis should be respected and likely taken as a warning sign to get out of shorts.
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