Retail sales benefited enormously from low interest rates…

From its March 2020 lows to its November 2021 peak, the SPDR S&P Retail ETF (XRT) rose fourfold in price.

However, the Fed has steadily tightened the screws this year. And XRT came under increasing pressure. It spent the first half of 2022 in a strong downtrend.

By the time XRT was able to find a base mid-year, it had lost almost half of its value. Despite trying to rally in August, XRT has been stuck in a tight range since then.

Now XRT’s more recent attempt to rally is running out of steam. So today we’ll see what’s in store for this highly important sector…

A Chart of Two Halves

On the chart below, the 50-day moving average (MA – blue line) shows XRT’s clear downtrend at the start of 2022.

Apart from an extremely brief crossover around mid-March, the 10-day MA (red line) has bearishly remained below the 50-day MA throughout the down move.

Take a look at the chart…

SPDR S&P Retail ETF (XRT)

Source: eSignal

Also, notice the action of our momentum indicator, the Relative Strength Index (RSI)…

The RSI remained predominantly in the lower half of its range (below the green line) throughout XRT’s down move.

Only when XRT rallied from late July through August, was the RSI able to gain any traction in the upper half of its band.

However, that moved petered out and reversed as the RSI made an inverse ‘V’ at overbought territory (upper grey dashed line).

The RSI then bearishly broke down through support and into its lower range. When we last looked at XRT on October 13 (red arrow), it was retesting its long-term support (orange line).

As you can see, this level held with the support of the RSI. Take another look…

SPDR S&P Retail ETF (XRT)

Source: eSignal

After forming a double ‘V’ from oversold territory (lower grey dashed line), the RSI began to trend higher, making a series of higher lows (red line).

This buying momentum propelled XRT higher. The RSI broke back through resistance and back into the upper half of its range.

The 10-day MA further confirmed this move higher when it bullishly broke back above the 50-day MA.

However, the two MAs are now converging. The RSI is once more testing support, and XRT’s up move seems to be faltering again.

So what am I expecting from here?

Looking for Two Key Signals

For XRT’s up move to regain momentum, there are two technical signals we’ll need to see…

First, the RSI needs to hold support. The longer the RSI can stay in the upper half of its range, the bigger any up move could become.

We’ll also need to see the 10-day MA turn higher and start accelerating away from the 50-day MA.

But if either of these factors fail to play out, then that’ll further confirm November’s brief rally is finished for now.

If the RSI breaks down through support, then XRT will continue to fall.

Then, the RSI getting stuck in the lower half of its band would likely lead to XRT retesting support (orange line).

And a break below that level would be the start of another leg down.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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