Retail stocks may be ready to break down


I’ve blogged and written numerous articles for the Globe & Mail, Investors Digest, Moneyletter on the subject of “The Great Rotation”. The Great Rotation represents my belief that many of the market leaders from recent years may be beginning to show relative underperformance to newly emerging leaders. In the ValueTrend Equity Platform that I manage, I’ve been focusing on stocks that have been stuck in consolidation patterns for a decade or longer, and are just now breaking out of those . As the old leaders break into emerging uptrends, many stocks that had been previously dismissed by many investors for many years are becoming attractive. Here is my December 2013 blog noting 3 such stocks that appear to be emerging as new market leaders:


One sector that may be breaking its uptrend is the retail sector. While the uptrend on the SPDR Retail ETF (XRT-US) that began in 2009 does not yet appear to be broken, it is playing in the danger zone at this moment. Its broken its 200 day MA (green line) , but not its trend line. I don’t worry about short termed breaks of this key MA, so long as the market moves back above that indicator within a few weeks. In fact, if the 200 day MA is cracked in a broad market selloff, I pay less attention – as happened in 2011. What concerns me right now is the timing on this potential red flag. The S&P remains above its 200 day MA, and sectors that are breaking the indicator show poor relative strength. Note the comparative relative strength of this sector to the S&P500 on the bottom pane of the chart. I use a 20 day MA to track its direction, and that line has been broken. Further, note the declining Chalkin MoneyFlow indicator in the top pane. Money is exiting this ETF, which probably indicates money vacating the underlying stocks.

All in, the trend is still up for XRT. Watch for a trend line break if you are long this ETF, or long stocks in the index. This is not an outright bearish chart, but there are some leading indicators suggesting caution is warranted.

I’ll only be posting this blog this week as I’m riding a bike in Florida as you read this! Back next week.

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