Thackray Market Note
Retail - Time to Shop !
February 17, 2016

The retail sector underperformed the S&P 500® in the fourth quarter of 2015, but it is setting up to perform well over the next two months. 

The retail sector had its troubles in autumn as ­investors were concerned that slowing global growth was going to have a negative impact. In addition, weaker than expected earnings from some large retailers such as Nordstrom and Macy’s had a negative impact on prices.

Last Friday, the U.S. Commerce Department announced that retail sales increased 0.2% in January on a month-over-month basis. This was higher than expected. Also, the December retails sales were adjusted upwards from -0.1% to 0.2%. The announcements were positive news in a sector that had previously performed poorly, and helped to provide a positive backdrop for retail stocks to advance.

The retail sector has positive seasonal support at this time of the year. From January 21st to April 12th, in the period from 1990 to 2015, the retail sector (S&P GIC sector), has produced an average gain of 8.5% and has been positive 77% of the time. More importantly, in the same time period it has outperformed the S&P 500® 81% of the time (for further details, see Thackray’s 2016 Investor’s Guide, page 9). Strong absolute average performance, high frequency of positive gains and a high frequency of outperforming the S&P 500® are the hallmarks of a strong seasonal trade. 

Using SPDR S&P Retail ETF (XRT) to represent the retail sector, technically the sector is well set up to advance.  The sector has just broken above a mini-double bottom pattern and its next major resistance level is at $46, where its 200 day moving average currently resides. The sector has room to move higher. Relative to the S&P 500®, the sector has been consolidating after breaking its down trend line that lasted from September into December. Consolidation relative to the S&P 500® before the start of a seasonal period is typically a positive technical setup.


The retail sector earnings parade launches on the morning of Thursday February 18th, with Walmart reporting before the bell and then other major retailers following on Friday and next week. Of course, it is possible that retail company earnings may either underperform or outperform expectations. Nevertheless, given the current technical setup and the strength of the seasonal period for the retail sector, it is a sector of the stock market worth considering.