The Retail SPDR (XRT) remains one of the strongest ETFs in the market. As a core part of the consumer discretionary sector, retail is one of the most important industry groups and Christmas is perhaps the most important season. A lot is riding on the consumer this holiday season. The chart below shows XRT bouncing off support in the 42.5 area and working its way back above 50. A rising channel has taken shape with support marked at 47.50. The bulls are in good shape as long as prices hold this rising channel. A move below 47.5 would break channel support and argue for a continuation of the summer decline. This would be a bearish development for retailers, the consumer spending outlook and the broader market. 

Click this image for a live chart.

The indicator window shows 14-period RSI. Notice that RSI broke above 60 in April 2009 to turn momentum bullish. Once bullish, RSI oscillated between 40 and 80 during the bull run. Andrew Cardwell, a noted RSI expert, notes that RSI oscillates in bull zones and bear zones. A bull zone extends from 40 to 80, while a bear zone extends from 20 to 60. Notice that RSI moved below 40 with the summer breakdown and is now hitting resistance in the 50-60 zone. This puts RSI in a bear zone and sets up a big test for momentum. A break above 60 would turn momentum bullish again, while a break back below 45 would be bearish.

Good trading   -- Arthur Hill CMT

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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