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Retail Stocks Hold Up-Trend Despite Amazon’s Decline

David Becker
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www.iforex.com
Retail Stocks Hold Up-Trend Despite Amazon’s Decline

Retail stocks are holding steady but coming earnings reports could determine the direction of the sector. The Retail SPDR (XRT) and the MarketVectors Retail ETF (RTH) are still in uptrends, but both are testing important support levels that hold the key to these uptrends. Traders should watch these two closely because breakdowns would be negative for the retail industry, the consumer discretionary sector and the market as a whole.

The XRT was breaking out in early June and hitting a new high in early July. The ETF then declined to its support zone in mid-July. The breakout zone, 50-62% retracement and a buffer mark support in the 83-84 area. A normal correction within an uptrend should stop and reverse in this area. Look for a break above last week’s high to signal an end to the correction and a resumption of the uptrend. Failure to bounce and a move below 83 would suggest that this is more than just a correction. Relative weakness remains a concern for retail. The XRT:SPY ratio is hitting a new low this month as retail continues to underperform the SPY.

MarketVectors Retail ETF (RTH) is falling back towards support over the last two days. Friday’s weakness stems from a big decline in Amazon (NASDAQ:AMZN) , which is the second largest holding. On the price chart, the rising 200-day moving average, broken resistance and the June lows combine to mark support in the 59 area. A break below the June lows would be bearish here and argue for further weakness. The indicator window shows MACD turning positive at the end of May and hovering in positive territory the last two months. Momentum is still bullish right now. A move into negative territory would turn momentum bearish. On AMZN the momentum is bearish and the stock is having a difficult time recovering above the 50-day moving average at 328.

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