How To Trade Retail

How To Trade Retail Stocks This Holiday Season

This post might be subtitled What To Do With Brick & Mortar Retail.  Consumer Discretionary (more commonly known as Retail) stocks are historically some of the best money makers for traders.  They trade good volume, have frequent data points and significant ranges. 

There’s currently a divergence taking place in the members of a large retail ETF (XRT) that could provide even more opportunity to traders willing to wade in.


XRT ETF – The monthly chart shows the potential for an explosion higher.

How To Trade Retail 


The Weekly Chart shows the same as the monthly.

How to Trade Retail


How To Trade Retail

That bullish pattern is a direct contradiction to the many professionals (including yours truly) who say Brick & Mortar Retail has a problem…

Not a temporary or cyclical problem…

But a structural problem…

That is neither going away nor easily addressed.  But given how good XRT looks to the long side, it lead yours truly to go looking for the reason… How can retail possibly look so strong in light of the headwinds it faces? 

I think I found the reasons… Or the biggest of them anyway. 

Reason #1 – The worst performing stocks generally have the lowest weights in the XRT ETF.  For example, as the sheet below shows, Rite Aid’s (RAD) 52 Week % Change is -75.88%… but its weight is 0.80%.  Alternatively, Conn’s (CONN) weight is 1.24%… and the 52 Week % Change is 173.78. 

In other words, generally speaking, the larger weighted stocks have outperformed the smaller weighted stocks… substantially.

In fact, here’s a look at the top 20 weighted stocks and their average 52 Week % change.


Reason #2 – Some of the best performing retail names in the ETF are NOT traditional brick & mortar.  In some instances, it’s hard to imagine them as retail names at all.

Amazon – AMZN


Netflix – NFLX


Liberty Interactive – LVNTA


Reason #3 – There’s a vast difference between old line brick & mortar names versus companies that have done a better job of bringing themselves into the digital age.  The best example of this is, of course, Walmart.

WMT – Monthly 


WMT – Weekly


How To Trade Retail

So how can you profit from all this information?

My thought is to wait for sector sympathy rallies to resistance over the holidays in some of the worst old line brick and mortars like Macy’s, J.C. Penny and Sears and then take low risk shorts… Yes, you read that correctly… shorts.  The stocks in this category have been trending lower for quite some time so the larger structure is already pre-disposed to deliver on prudent short positions. 

Macy’s [M] Monthly


Macy’s [M] Weekly – Look for a short setup between $27.50 and $35.


Sears Holdings [SHLD] Monthly


Sears Holdings [SHLD] Weekly — I’ve been a permabear on SHLD for quite some time… I also hate to look for trades in an extended direction.  Still, SHLD trades like a stock that’s going out of business… Rallies are to be shorted.


J.C. Penney [JCP] Monthly


J.C. Penney [JCP] Weekly – JCP hasn’t been beyond reproach… As long as the stock stays below $7.00, it’s reasonable to look for short entries.


If you’re really feeling yourself (and you have the requisite experience), you can pair a short against one of the stronger names as a long… For example, buy WMT against an equivalent risk short of JCP.  But that’s a bit deeper than this post is intended to be, thus it’s for another day.

All said, as always, mind your risk above all else and you’ll be fine whether the trade wins or loses. 

Hope it helps…


The Trader