Retail Too Far Too Fast?

Equities have had a very nice recovery from the February lows. One group that has quietly notched a 20% gain since those lows is the Retail sector.  The XRT ETF is an equally weighted ETF, meaning smaller stores like FIVE & GME have relatively the same weighting in the ETF as larger companies WMT & TGT.  Many of the smaller cap names like JCP & URBN have heavily contributed to the ETF s gains over the last month as JC Penney is +50% & Urban Outfitters is +23% over the last month.

However, the XRT is approaching its 200d MA (Moving Average) and also looks a bit overextend on the RSI (Relative Strength Index) at a 74.  Generally, an over 70 level on the RSI is in overbought territory.  In addition, this morning’s US monthly Retail Sales report showed a -0.1% decrease with the prior month being revised down from a +0.2% to a -0.4% reading.   Considering that Retail Sales are not showing strong growth I think it sets up for an opportunity to fade the recent strength in Retail.

The TribecaTradeGroup’s Trade Idea:

-          Sell the XRT Jun 47/50 call spread @ $0.75.  This is a credit call spread.  Selling the Jun 47 calls and buying the Jun 50 calls and collecting $0.75 (total risk is $3.00-$0.75 = $2.25)

XRT – 1 year chart

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source: bloomberg


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