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Retail Holding Steady, Bullish Bias Remains

David Becker
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Retail Holding Steady, Bullish Bias Remains

Tuesday was an important day for retail stocks because the Commerce Department reported a .6% increase in core retail sales for June. The core number excludes autos, gas, building materials and food services. Despite a pretty good number, the Retail SPDR (XRT) extended its slide and is now down around 3% the last seven days. The market looks poised to snap back today which should give retail stocks another opportunity.

XRT was breaking out in June and hitting a new high in early July. The recent pullback is sharp, but the overall uptrend remains with a bullish bias until support is broken. The February trend line and 50-62% retracement mark is the support zone. A break below this level would be deemed more than just a correction and warrant a reassessment. The ratio between the XRT:SPY moving to a new low as XRT continues to underperform SPY. This means that retail is underperforming the broader market, and has now pushed to new lows. Relative weakness is negative, but it has yet to translate into a break down on the price chart.

The MarketVectors Retail ETF (RTH) was breaking out in late May and stalling the last few weeks. This breakout is largely holding as broken resistance turns into support in the 59 area. The rising 200-day day moving average and the 50-day moving average also mark potential support here. The bullish bias remains as long as the ETF holds this support zone. A decisive move below this support zone would break both moving averages, and prove the bullish case otherwise. The MACD is treading water above the zero line. Momentum has a positive bias as long as this indicator is above zero. A break into negative territory would turn momentum bearish.

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