Winter’s Sale on Retail

Although their status in bull market territory just got a lot more tenuous, it is clear that retail funds have begun to move to levels where buyers historically have come off the sidelines.

What remains to be seen is if these funds, including the broader consumer discretionary ETFs like the ^XLY^, continue to retreat, making their oversold conditions all but irresistible to traders looking to buy weakness and sell strength.

The two major retail exchange-traded funds, the ^RTH^ and the ^XRT^, both closed lower on Tuesday, finishing in the red for a third session out of the past four. Tuesday’s sell-off sent XRT lower by nearly 3%, RTH lower by more than 2%, and both stocks to their lowest closing levels in almost two weeks.

Short-term closing lows have been worthwhile for traders to pay particular attention to, particularly as these funds have moved back into bull market territory this fall. A nine-day low in RTH in early November, for example, provided a hint of an oversold market that was higher by more than 3% and at new, nine-day closing highs just days later.

Heading into trading on Wednesday, the XRT has a positive, short-term edge of more than 1%. The XLY has a positive edge of just over three quarters of a percent.

When these funds come bouncing back, they are likely to be led by similarly oversold-and-due-for-rally component stocks like ^LOW^, down more than 2% and closing lower for three out of the past four, and ^AMZN^. Shares of dropped by more than 4% ahead of trading on Wednesday, also finishing down for three of the last four trading days.

Are there markets in retail that should be avoided? Rallying into overbought territory in Tuesday’s down market were shares of ^URBN^. The stock gained more than 5% to finish in overbought territory, but closed near session lows. URBN has been trading in bear market territory since early March and actually opened above its 200-day moving average on Tuesday. The stock is on pace to open on Wednesday with a small negative edge of just over half a percent.

And wintertime may be a great time to shop in summerwear, but shares of ^PSUN^ are no bargain in the short term after finishing up more than 1% and in overbought territory for a fourth day in a row.

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