Exchange-traded funds (ETFs) can be used as a quick health check or comparison between markets or industries. Conventional retail ETFs have been hammered lower in the past year, composed of mainly brick-and-mortar stores that are losing market share to online retailers. By comparison, the online retail ETF has been moving aggressively higher.
Clearly, investors are buying into online over conventional retail. This isn’t a new story. Conventional retail has been declining since 2015. What is interesting is where these ETFs are technically. Has conventional retail reached a major bottom, or is the recent upside push just a blip higher in the long-term downtrend? At the same time, the online retail ETF has been surging, closing in on former highs. (See also: Playing the Decline of Traditional Retailers.)
The SPDR S&P Retail ETF saw a major decline in 2015. In 2016, the ETF generally had a ranging year, while 2017 has seen prices decline back to the early 2016 lows. The low in early 2016 was $37.80. On Aug. 21, 2017, the price just barely dropped below that level ($37.72) before quickly shooting up nearly 10%. This indicates that the area around $37.80 to $37.70 still signifies support. Bottom pickers would probably view this as evidence of a bottom, but that may be a bit optimistic at the moment.
The Sept. 13 closing price of $41.38 is still below the most recent swing high (Aug. 8) of $41.73, and the trend is strongly down since late 2016. Before buying this ETF, the price should technically rally above $41.73. The pullback that follows should be weak and slower moving, and it should bottom out well above the August low, showing that sellers are losing steam. This would be in stark contrast to all the drops over the past year, which have been large and very fast. It could take months to see a pattern like that (if it even develops), which would help signal a possible turnaround in the industry. In other words, it is too early to be bullish or excited about conventional retail. More likely, based on the trend, $41.70 to $42.00 is an area to consider short trades with a relatively tight stop-loss. (For more, see: More Pain Ahead for Retail ETFs?)
Online retail is booming, while conventional retail is getting crushed. These ETFs are both nearing critical technical levels. …read more
Read more here: Conventional Retail Versus Online Retail ETFs
Category: XRT, IBUY