Weekly ETF SPY: XRT – Profitable Detail about Retail

The retail sector measured by the SPDR S&P Retail ETF trades less than 1% below its all-time high. But with recent market weakness, it may be beneficial to look at sectors that carry magnified down side risk, such as XRT.

The retail sector has been on fire, with the SPDR S&P Retail ETF (XRT) soaring 378% from its 2008 low to its 2013 high.

XRT is less than 1% below its all-time high and the recent weakness thus far looks like nothing more than a tempest in the teapot.

But what goes up must come down and after a 378% gain there’s a decent ‘coming down’ risk. Discussed below are some key support levels likely to trigger a deeper correction and support levels likely to halt the decline.

Wednesday’s drop registered a bullish percentR low-risk entry, which sent prices higher on Thursday. The percentR low-risk entry occurred against support (prior high/low) around 68.70 (see daily XRT chart).

This is now important short-term support. A daily close below 68.70 would trigger a sell signal for aggressive investors (with a stop-loss just above 68.70 (as long as prices remain above 68.70, there’s not much to get excited about).

Additional support is provided by the 50-day SMA at 68.34. After that comes a small ‘air pocket,’ an area without significant support. This is followed by a support cluster at 65.5 – 63.

In short, sustained trade below 68.70 should take XRT to 63 – 65.5. There’s more down side risk, but we’d have to evaluate the chart structure once we get there.

The weekly XRT chart shows prices cradled by a 4+ year parallel trend channel. The dashed center line of this trend channel has provide support numerous times and may do so again. If it doesn’t, watch out for lower prices.

Aside from the UltraShort Consumer Services ProShares (SCC), which provides 2x inverse exposure to the consumer discretionary sector, there is no short ETF that tracks XRT or the retail sector. However, investors may short XRT or buy/sell options.