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Here we go, the earnings season is finally setting its sights on the retail sector, as companies like Home Depot Inc (HD), Walmart Inc (WMY), Target Corp (TGT), and TJX Companies (TJX) start providing their results and guidance.
Just like the large-cap tech index, the Nasdaq 100, the retailers' earnings come as concentrated waves, indicating SPDR S&P Retail ETF (XRT) is about to become a "trade-rich environment."
The breakdown of the XRT shares is one of the more equally weighted out there. For example, Walmart is the largest retailer in the country; Kroger is the second largest.
Well, the two largest retailers in the country only represent about 2.5% of the XRT's total weight. This is a stark difference from the QQQ weighting, which more heavily favors the largest companies.
Put more directly, it is harder for any five or six companies to induce a rally in the sector given its more equally-weighted nature.
Here's a quick technical breakdown of the sector as it stands today...
XRT Chart: The technical picture for the overall sector is not bullish. In March, the XRT's 50-day moving average (MA50) rolled over into a bearish trend. This indicates the sector has a lower price target over the next four-to-six weeks.
The last trading day of April saw another bearish pattern form, as the MA50 crossed below the 200-day moving average (MA200). This is referred to as a "Death Cross," as it often indicates a stock or ETF is gaining long-term momentum to the downside.
The last Death Cross on the XRT shares occurred in January 2022 and led to a 30% decline over the next three months.
Do I think we're in for another 30% from here? The answer is "no," but things could get bumpy... especially at the company-by-company level.
As of now, 37 of the 88 stocks that make up the XRT shares are trading above their respective MA50s. That puts about 60% of the sector under their key MA50s.
Here's a quick look at the "leaders" among the XRT...
On the other side of the coin, here's the list of the top 10 companies trading below their respective MA50s.
Of course, I'm not going to stop there. Let's drill down on the sector for a bull and bear trade...
Bullish XRT Pick: Kroger Co (KR)
Discretionary spending is the first thing on the block when it comes to the retail sector.
Companies that sell items that are higher on the "needs" list are those that are showing strength against others. This is where Kroger comes in.
The second-largest retailer in the country, Kroger has been outperforming the largest retailer in the country, Walmart, as it returns to its leadership role.
I've referred to KR as the "Technology of Grocery" for a reason... The company remains on the cutting edge.
Expansion into new markets with the acquisition of Albertsons Companies Inc (ACI) will help the grocer, but it's the company's organic growth by way of growing its own logistics chains that makes …
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About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.