Trading By the Numbers: Ready for the Rally in Retail?

With stocks moving off their traditional seasonal lows, focus is likely to shift soon toward the resilience of the American consumer as the year-ending, holiday shopping and gift-giving season begins in earnest.

There may be no sector more strongly affected by this season that the retail sector. In fact, it is a truism that the retail sector essentially lives on a starvation diet until the winter holidays come round – when, if the consumers will have it, retail establishments from Family Dollar (FDO) to Tiffany’s (TIF) can finally feed their bottom line.

As the shopping seasons gets underway, there are a couple of ways for traders and active investors to keep tabs on – and potentially make profits from – how the market feels the prospects for a bountiful retail season will be. Among them is the Retail HOLDERS ETF (RTH).

RTH includes among its holdings such retail stalwarts as (AMZN) and Target Corporation (TGT). The fund itself has been pulled lower repeatedly in recent days, correcting as sellers take profits from the ETF’s big run up over the course of October. In the past week, for example, shares of RTH have closed lower four out of five times. That said, it is also worth noticing that the selling has pulled the fund toward levels from which it historically has found buyers and stage short-term snapbacks.

Another consumer sensitive exchange-traded fund that has also seen a significant amount of selling in recent days is the Consumer Discretionary Select Sector SPDRS ETF (XLY). Like RTH, XLY includes a number of top retailers among its holdings,, and has also finished lower for four out of the past five trading days. Both ETFs are back in bull market territory, having spent all of August and all of September trading below their 200-day moving averages.

For traders and active investors who have grown immune to the traditional hand-wringing over the fate of the consumer this time of year, short term weakness in consumer and retail funds like these could be among the earliest and most rewarding shopping opportunities of the holiday shopping season.

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

David Penn is Editor in Chief of