Despite a strong start in the S&P 500 this year, the Retail HOLDRS (RTH) remains under pressure and is lagging the overall market. This is not a good sign for the industry group or the Consumer Discretionary sector, which is heavily weighted towards retail stocks. In addition, retail sales drive 2/3 of GDP and weakness in this group is not a good sign for the economy.
The Retail HOLDRS (RTH) is trading near broken resistance, but shows no signs of strength and weak relative strength argues for continued underperformance. On the price chart, the Retail HOLDRS (RTH) broke resistance (95) in November with an advance to 100. Weakness in December and January drove the stock back to broken resistance at 95 and this area now acts as support (green rectangle).
RTH made two attempts to firm this week, but more is needed to revive the bulls in this key group. With a black candlestick on Thursday and smaller white candlestick on Friday, a harami formed at support (gray oval). These are bullish candlestick reversals that require confirmation. I would look for a move above 97 for initial confirmation and this would target a resistance test around 100. A break above 100 would be most bullish for the group, the Consumer Discretionary sector and the broader market.
