When ultra-low interest rates flooded the economy with cheap money, retail sales thrived.

Beginning in March 2020, the SPDR S&P Retail ETF (XRT) rallied a whopping 300% in just 20 months.

But after peaking in November 2021, XRT’s fortunes soon reversed. By the time it bottomed out in late June, XRT had lost around 45% of its value.

However, by July 20 XRT’s selling pressure had abated – which enabled it to form a base.

Retail sales are important economic indicators because they reflect consumer spending. So today, we’ll check out what’s next for XRT…

From Downturn to Rally

On the chart below, you can see how XRT’s long-term downtrend began at ‘A.’

In November 2021, this selling momentum increased when the Relative Strength Index (RSI) broke down through support (green line).

Soon after, the 10-day moving average (MA – red line) broke below the 50-day MA (blue line).

SPDR S&P Retail ETF (XRT)

Source: eSignal

Apart from a brief cross in March, the 10-day MA has bearishly stayed below the 50-day MA throughout XRT’s fall.

And for the most part, the RSI has also stayed in the lower half of its range – a common pattern in a long-term downtrend.

But when we last checked XRT in July, we saw how it had formed a short-term base (orange line) after selling momentum declined.

Back then, XRT needed two common signals to rally…

1. The RSI needed to break into the upper half of its band and stay there.

2. The 10-day MA needed to break back above the 50-day MA.

As you can see, that’s exactly what’s happened…

SPDR S&P Retail ETF (XRT)

Source: eSignal

On July 27, the RSI broke through resistance and the 10-day MA crossed above the 50-day MA the following trading session. XRT then rallied an impressive 24% off its June lows.

However, when XRT peaked at ‘B’ the RSI reversed from overbought territory (upper grey dashed line). Now it’s tracking very close to support.

So, what happens around here will determine XRT’s next direction…

It All Hinges on the RSI

For XRT to resume its uptrend, it must first hold support and stay in the upper half of its range. Then XRT’s next test would be to rally higher than ‘B.’

Also, the 10-day MA must stay above the 50-day MA to confirm this uptrend is regaining traction.

However, if the RSI breaks down through support and gets stuck in the lower half of its range, then this rally will come to an end.

In that case, XRT’s long-term downtrend that began in November 2021 would likely continue.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

Reader Mailbag

Based on the RSI’s recent action, where do you think XRT is headed next?

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