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Retail Sector Could Hold the Key to a Santa Claus Rally

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The market has been under pressure the past several weeks after all of the major indexes hit record highs during November. The NASDAQ has particularly had a tough time getting back on track and it's hard to imagine any Santa Claus rally without the participation of tech stocks.

But one sector that might hold the key and has really shown tremendous weakness of late is retail. In fact, you can see the substantial move lower in the retail ETF -- the XRT -- since it hit its peak mid-November.

A few observations. First, notice that the XRT is below its 200-day moving average for the first time since its pandemic low back in the Spring of 2020. That never bodes well and is showing that inflation and supply chain issues are really weighing on the sector.

Next, the breakdown in the sector is happening right at the peak of the holiday shopping period. Not a good sign. Further, in spite of the XRT falling by almost 14% in about a two-week period from its November high, traders don't seem to be in any hurry to take advantage of much lower prices. A great example is Macy's (M), which has been a retail darling that had more than tripled since the beginning of the year, but has pulled back substantially from its most recent high with no takers.

As usual, though, we do need to keep things in perspective. For example, in the case of Macy's, it's still up substantially for the year in spite of the recent pullback. And, in fact, it's close to being technically oversold. So it would not surprise me to see traders taking a serious look at stocks like M, which, in turn, could lead to a rally in the retail sector heading into year-end.

I still believe we'll need to see renewed interest in tech stocks for the market to get back to its all-time highs. But if traders start to take advantage of the substantial pullback in stocks like Macy's, we just might be seeing green as Christmas comes around. In the meantime, if you would like to stay on top of the overall market, including fresh trading opportunities, feel free to sign up for our FREE newsletter, the EB Digest, by clicking here and, every M, W and F, you will get insightful and timely information from our Chief Market Strategist Tom Bowley.

At your service,

John Hopkins

EarningsBeats.com

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