It has been a trying year for retail exchange traded funds, such as the SPDR S&P Retail ETF (NYSEArca: XRT) and the Market Vectors Retail ETF (NYSEArca: RTH), as the consumer discretionary has stumbled and consumer-related data has not thrilled investors.
Despite an expanding economy and healthier employment numbers, consumers are spending less, with retail sales slowly losing steam. According to the Commerce Department, U.S. retail sales stalled in July, up a lower-than-expected 0.1% excluding auto sales from June, the weakest result since January. [Risks for Retail ETFs]
XRT and RTH are down 3.2% and 1%, respectively, year-to-date while the S&P 500 is higher by 7%, but there are some encouraging technical signs emerging for the two beleaguered retail ETFs.
“After an ugly selloff in January, retail ETFs XRT and RTH have spent the past the past seven months in base-building mode and have tightened considerably as of late. RTH has reclaimed the 10 and 40-week MAs after following through on last week’s bullish reversal candle on higher volume. RTH is no longer a heavily traded ETF, but the chart does show the potential for a major breakout in big cap retail stocks,” according to Deron Wagner of Morpheus Trading Group.
There are some positive fundamental signs that could trickle down to XRT and RTH, including investors returning to consumer discretionary ETFs. Last week, the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) added nearly $80 million in new assets. Since the start of the third quarter, only two ETFs have added more new assets than XLY, the largest discretionary ETF. [A Return to Discretionary ETFs]
“XRT, which put in a false breakout in early July but failed to breakdown below the 40-week MA. XRT is now back above the 40-week MA but has yet to reclaim the 10-week MA. On the daily chart the 10-day MA has turned up to provide support after trending lower for 20 bars in a row,” added Wagner.
The $615.4 million XRT is an equal-weight ETF, so no stock accounts for more than 1.21% of its 103 holdings. RTH’s top-10 holding combine for over 63% of that ETF’s weight. Those stocks include Wal-Mart (NYSE: WMT), Amazon (NasdaqGS:AMZN) and Home Depot (NYSE: HD).
Market Vectors Retail ETF