Larry’s Note: Tomorrow morning at 11 a.m. ET, I’m sharing a timely message with readers. That’s because, on June 16 – roughly a week away – a shockwave is about to hit the market.
You don’t want to wait till the 16th, though… The key is to place your trade ahead of time. That’s the best way to profit from this shockwave. When similar waves have hit in the past, I’ve helped traders more than double their money in just a day or two.
For the details, please go right here so you can learn more as soon as this message goes live.
Retail sales felt the pain of rapidly rising interest rates last year.
From its peak in November 2021, the SPDR S&P Retail ETF (XRT) nearly halved in value before bottoming out in late September last year.
Since then, XRT has been trading in a sideways range.
When we last checked in on XRT on March 28 (red arrow), we were waiting for two signals to intersect. If they did, that would likely set off a potential bounce.
XRT did rally initially. But the price action couldn’t follow through.
Now a similar pattern is emerging. And today, I want to see what’s coming next…
Momentum Retraced
XRT transitioned from a downtrend into a sideways pattern in the second half of last year…
The 50-day moving average (MA, blue line) tracked sideways with the shorter-term 10-day MA (red line) crossing it multiple times in both directions. That’s a common sideways pattern…
SPDR S&P Retail ETF (XRT)
Source: e-Signal
Within this pattern, you can see recurring signals…
The Relative Strength Index (RSI) formed a ‘V’ or double ‘V’ (red circles) and rallied from oversold territory (lower grey dashed line) multiple times.
That coincided with XRT rallying in May, September, and December last year. We also saw it again this year in March and the start of this month.
And notice the action of the RSI when XRT peaked in August 2022 (‘A’) and February (‘B’) this year…
The reversal from these peaks coincided with the RSI forming an inverse ‘V’ and retracing sharply from overbought territory (upper grey dashed line).
However, it’s the action of the RSI around the middle of its range – support/resistance (green line) – that I want to focus on today…
Take another look:
SPDR S&P Retail ETF (XRT)
Source: e-Signal
Those major peaks at A and B (and the minor peak up to ‘a’) occurred when the RSI broke up through resistance. It gained a firm footing in the upper half of its band.
When the RSI failed to break through resistance from May through June last year, XRT’s rally petered out. XRT only rallied when the RSI finally broke through resistance in July.
That’s happening again this year…
As the chart shows, the RSI has repeatedly tested that resistance level since March. But so far, it hasn’t been able to break through. As a result, XRT has steadily drifted lower.
Yet the RSI is once again set to test resistance…
Can things work out differently this time around?
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The Previous Pattern Is a Guide
From looking at previous patterns, we know what happens next with the RSI will be key…
The RSI needs to break through resistance and gain a foothold in the upper half of its range for XRT to rally.
Any prolonged move higher would be dependent on the 10-day MA accelerating above the longer-term 50-day MA.
But right now, the RSI is stuck right up against resistance. So any move higher is hanging in the balance…
If the RSI doesn’t break through? Then the current bounce in XRT will be short-lived.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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