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Larry’s note: Welcome to Trading with Larry Benedict, the brand new free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us. My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row. But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it… |
When the pandemic hit last year, it changed the way people spent their money…
Folks got busy doing all kinds of jobs they’d been putting off. Others that work permanently from home decided it was time to upgrade their home office…
All this extra spending found its way into the pockets of some of the nation’s biggest retailers, like Amazon, sending their stock prices soaring.
One of the ways I keep tabs on retail spending is through the SPDR S&P Retail ETF (XRT).
With this massive boost in retail spending, XRT went on a tear. In just 10 months, its stock price more than tripled.
But right now, I’m seeing signs that this spending is slowing down. To see what I mean, let’s pull up the chart…
SPDR S&P Retail ETF (XRT) Daily Price Chart
Source: eSignal
On the chart are our two regular moving averages (MA)…
The red dashed line represents the 10-day MA (short-term trend), and the blue dashed line is the 50-day MA (long-term trend).
Although not depicted in this chart, the rally in XRT goes all the way back to April 2020. That’s when the 10-day MA broke up through the 50-day MA.
Apart from a very brief cross over in September last year, the 10-day MA stayed above the 50-day MA until recently.
But as the chart shows, over the last few months two distinct things have happened…
First, having risen rapidly from January this year, the curve of the 50-day MA began to flatten from June through September.
And, just like the arc of a circle, over these past five to six months the 50-day MA has ever so gradually rolled over from its uptrend. Right now, a new downtrend looks to be emerging.
The second event relates to the relationship between the two MAs…
Let’s take another look at the chart…
SPDR S&P Retail ETF (XRT) Daily Price Chart
Since its peak gap in March, the distance between the two MA’s began to close. Then, after tracking each other closely from July to late August, the 10-day MA crossed back down over the 50-day MA at the start of last month (‘A’).
Apart from September 2020, that was the first time this had happened since February 2020.
But what has really caught my attention is the action since that crossover…
In mid-September, XRT tried again to push higher… the share price traded above the 50-day MA for over a week. But, just as the 10-day MA looked like it might cross back above the 50-day MA, it ran out of steam…
XRT had a big down day, followed by over a week of sideways action. This has sent the 10-day MA even further below the 50-day MA.
So, what might happen from here?
For XRT to have any real chance to rally in the short-term, it will first need to hold above the upper blue horizontal line.
If it fails to do that, the next lower price level of any significance (lower blue horizontal line) dates back to this February. That’s when XRT consolidated at around $77 before moving higher.
A break below the upper blue line could see XRT testing that $77 level next.
In the meantime, however, the other thing I’ll be watching closely are the two MAs…
If XRT breaks short-term support – and the 10-day MA begins to move further below the 50-day MA – that could be very bearish, which could mean an opportunity to go short.
For now – until a clear chart pattern opens up – we’ll have to wait patiently and see.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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