Retail ETFs Looking Particularly Overbought

The S&P moved higher for a second straight week last week, after the down week four weeks ago and the neutral week three weeks ago. The rally did stall a little on Friday after the market had time to digest the May employment report.

There are still a couple of resistance points just overhead via the 950 level and the 52-week moving average.

You will also want to take note that the 13-week slow stochastic is still well above the 80 level, meaning that the S&P is still overbought. Of course, overbought can always become more overbought. Looking deeper into the overall market, 354 of the 500 stocks in the S&P have slow stochastics readings over 70. So it is not just the S&P itself that is overbought, over 70 percent of the stocks within the index are seeing overbought readings.

Having said this, I expect the market to pullback over the next 5-6 weeks. We are entering the summer months and this has historically been a time when the market has rested. Thus the reason for the old axiom, “sell in May and go away.”

One particular sector that looks vulnerable is the retail sector. A number of retail names popped on my bearish scan this morning, including the Retail HOLDRs Trust (RTH). The May retail sales report is due out on Wednesday and we could see some volatility from the group based on the overbought status and the report.

Disclosure: No positions.

Comments

[TCK:]

Agree with the sentiment, however I am using the XRT. Buying the July 30 /25 put spread with net cost of $2.00. Seems the XRT provides better entry points as options are available at closer strikes.

Also, looking at the holdings, would rather be short these retailers; CHS, GES, JWN, etc.


Comments appreciated !

Jun 09 09:09 AM

[ain't no fo...:]

I'm one of the more bearish folks on the street with regard to the fundamentals of the consumer and how those fundamentals SHOULD be impacting retail stocks. But SHOULD in this day of manipulation by JPM and GS machine gunning the SPX futures late every afternoon is a dangerous word.

I just looked at the 3 month and 9 month (daily) charts of the two etf's and 3 retail stocks you and the author were watching and while I shake my head in disbelief at the recoveries in all of them, I just don't see enough of a technical deterioration to want to short them YET. Most are above their rather tightly stacked 50 and 200 day EMA's (several of which have recently done a golden cross) and that in my opinion would suggest significant support under these stocks/etf's.

JWN looks to be the only one that is close to breaking down out of a rounding top, but even there until it breaks down decisively thru its 50/200 on volume I don't see the risk reward.

The one thing that IS popping up on many of these charts is negative divergences where the momentum oscillators such as MACD and to a lesser extent RSI and Sto are failing to break out above their earlier highs even as the stocks/etf's are breaking out to new highs. That is a good indicator of a toppy chart, but those divergences can last a while before being acted on, and again, with that 50/200 day EMA support I would rather wait for conclusive breaks down on volume before piling on.

There are billions and billions of $$ being forcefed from our government through those 2 bank holding companies I just mentioned, and the game is simple - do not let this market break down. I don't know about you, but they've got more spare change than I do.


On Jun 09 09:09 AM TCK wrote:

> Agree with the sentiment, however I am using the XRT. Buying the
> July 30 /25 put spread with net cost of $2.00. Seems the XRT provides
> better entry points as options are available at closer strikes.<br/>
>
> Also, looking at the holdings, would rather be short these retailers;
> CHS, GES, JWN, etc.
>
>
> Comments appreciated !

Jun 09 12:43 PM

[inthemoney:]

> There are billions and billions of $$ being forcefed from our government through those 2 bank holding companies I just mentioned, and the game is simple - do not let this market break down. I don't know about you, but they've got more spare change than I do.

Exactly. In fact, JPM was the culprit behind the two recent spikes on SPY at the close. GS, at least, is more sophisticated and better hides what it does.

They are set to repay TARP. Will they continue the same game, I wonder?

Jun 09 01:43 PM

[ain't no fo...:]

If you're reading Zero Hedge like I do, you can clearly see the JPM influence on the buy programs in the last 1/2 hour. Like you said, GS is now sneakier, and I think they were the ones gunning the futures overnight that resulted in pre-market gaps earlier in the rally.... both of them have benefitted greatly by the incredibly low volume we're seeing in the markets... doesn't take much to move the needle.

There's also talk that GS is getting heavy into the "black pools" trading and that would be no surprise whatsoever to me... a perfect place for them to hide under cover and do their wet work.

I don't know if the game continues. Last year I watched the Govt/IB's/MCB's hold an 11,000 Dow support line with hardly an intraday break from right after Bear to mid September. It was (in my opinion) politically motivated in an election year and I thought then that 11,000, representing about a 25% percent loss from the highs, was about all the administration figured the populace could handle and still vote in the status quo. LEH took care of that support line but good.

So, we have a terribly thin market, and a new administration, this time trying not to win an election but instead maintain people's confidence and slow a collapsing economy. What would it take to break this very thin market? A collapse of QE and a big run up of long term rates is one thing, and then there is always the black swan coming in out of nowhere that we never see coming.

I would be a very happy man to see two particular bank holding companies VERY LONG in a market that is giving up the ghost, I'll tell you that. VERY happy indeed. Those two bhc's (and the people feeding them the money from both administrations) have in my opinion hijacked not only our capitalist tradition but they have destroyed any remaining concept of free and open financial markets. Its a rigged game and they are getting away with murder. I doubt the trust of individual investors will ever come back after this pathetic episode in market intervention and manipulation.

Best of fortune.


On Jun 09 01:43 PM inthemoney wrote:

> > There are billions and billions of $$ being forcefed from our government
> through those 2 bank holding companies I just mentioned, and the
> game is simple - do not let this market break down. I don't know
> about you, but they've got more spare change than I do.
>
> Exactly. In fact, JPM was the culprit behind the two recent spikes
> on SPY at the close. GS, at least, is more sophisticated and better
> hides what it does.
>
> They are set to repay TARP. Will they continue the same game, I wonder?

Jun 09 02:12 PM

[fwi:]

Do you think that JPM and GS will start selling the market as soon as they repay the TARP (to weaken their TARP competitors)?

Jun 12 11:18 AM

[RiskReturnO...:]

I've been short XLY, long XLE ever since crude oil passed $70/barrel ... so far, this pairs trade is doing great, and I expect continued performance as long as crude stays above $65 ... US consumers are too weak to spending in rising mortgage rate and rising gas price environment, especially with 10% unemployment rate soon!

This only way that XLY could bounce back is if the weak dollar starts to generate big profit increases for the multinationals like MCD, DIS, ... but XLY contains many US focused companies like HD, LOW, ... so even weak dollar may not be enough.

Jun 13 01:32 PM