Retail Stocks: Patience Now Could Mean Profits Later

I wrote last week,

“Granny Retail XRT continues to have my attention. I will follow her. Over 80 I am all in on a bull run in equities. Under 70, I am cautious, if not bearish, in equities.”

I wrote this before I put in the channel lines, a channel I must say is a technical trader’s dream.

First, what is a channel?

You know what is incredible?

I wrote an article in 2010 about the channel in Semiconductors SMH, another key member of the Economic Modern Family.

“What is a price channel? A price channel is a continuation pattern that slopes up or down and is bound by an upper and lower trend line. The upper trend line marks resistance and the lower trend line marks support.”

In the article, I write about the slope of the channel lines, either bullish or bearish, but in the chart of XRT today, the lines are parallel.

Currently, XRT is in the middle of this high and wide channel. Analyzing the moving averages and phases is powerful but one can see that if the chart pattern is overlaid, XRT is now trading within the middle of the channel.

So, one would think that if the price breaks the channel either to the up or downside, the move would be powerful.

But the reverse is true. The wider the channel, the less velocity the break up or down is.

What should we look for now?

Best case scenario-a consolidation at either the low or high end of the channel. Then buy or sell the breakout or breakdown of that consolidation.

In other words, we want tighter compression within the channel, closer to its bottom or top.

What else is this chart telling us?

The phase remains bullish as today, XRT touched down on the 50-daily moving average and held.

The Leadership chart shows XRT underperforming . That of course, supports the fact that XRT is in the middle of the channel range.

The Real Motion indicator also tells us that jumping the gun to buy XRT before we know which way the channel reconciles, is indeed premature.

Momentum is in a bearish divergence as the red dots are beneath both the 50 and 200-DMAs while the price is above.

Hence, some patience is required.

However, the patient will be handsomely rewarded, as retail is huge and very necessary to keep the SPY and Dow on new all-time highs.

ETF Summary

(Pivotal means short-term bullish above that level and bearish below)

• S&P 500 (SPY) 565 pivotal support
• Russell 2000 (IWM) Range 215-225
• Dow (DIA) Not an island top but could still be a topping action
• Nasdaq (QQQ) 475 support 485 resistance
• Regional banks (KRE) 57 pivotal Support
• Semiconductors (SMH) 230 support 240 pivotal
• Transportation (IYT) 67.00 support
• Biotechnology (IBB) 145 support 150 resistance
• Retail (XRT) 73.50 support 77 resistance
• iShares iBoxx Hi Yd Cor Bond ETF (HYG) First week this closed above the 200-WMA-healthy