Amazon.com, Target Selling Weighs on Retail

With the Retail HOLDRS ETF (RTH) closing lower for a third day in a row and finishing well inside of oversold territory ahead of trading on Thursday, additional weakness could draw buyers off the sidelines just in time for the holidays.

The beginning of the winter holiday shopping season is a little over a week away. And while there are seasonal anxieties about the buying power of the American consumer, the fact that so many retail stocks are only recently off 52-week highs suggests that the selling in these names has far more to do with profit-taking than with a negative outlook on the fortunes of retailers overall.

That said, selling is selling. And as traders and investors exit funds like RTH, increasingly oversold conditions could provide a new cohort of traders with the opportunity to save money when buying a basket of the market’s largest retailers ahead of the most important dates on the retail sector’s calendar.

Recent pullbacks in RTH have proven sound opportunities for short term traders looking to buy weakness and sell strength. A three-day pullback in October, for example, provided traders and active investors with the opportunity to buy a very oversold RTH – one that was traded higher for the next five straight sessions, gaining more than 3%.

Helping contribute to current weakness in RTH are such components as Amazon.com (AMZN). Shares of AMZN have finished lower for two days in a row, pulling back by more than 2% in Wednesday’s session. Among the stronger components of the Retail HOLDRS ETF was Target Corporation (TGT), which opened higher by well over 2% on Wednesday only to finish near session lows.

The stocks and ETFs in today’s report were drawn from the data and research available through The Machine. To find out more, click here.

David Penn is Editor in Chief of TradingMarkets.com