Case Study: Retail Sales vs. RTH

| About: VanEck Vectors (RTH)

By Bryan McCormick

This morning's disappointing Retail Sales number begs some perspective, and the simplest way to do that is by looking percentage changes from a year ago in sales.

Percentage changes are also a way factor out some inflation effects in the report. The chart below is based on seasonally adjusted data, with retail and food services included

.The first thing to notice is how retail sales had actually begun deteriorating from mid-2005 onward, with that trend hyper-accelerating into 2008 and then bottoming in 2009.

Retail Sales Chart

(Click to enlarge)

If we look at a corresponding chart of the Retail HOLDRS (NYSEARCA:RTH) exchange-traded fund below, we can see that there is a relatively strong correlation in how this ETF has followed the retail sales trend. This chart is on a monthly basis to make comparison to the retail sales chart easier.

RTH Chart

(Click to enlarge)

Although the RTH didn't peak until 2007, in May of that year the peak can be seen on the Retail Sales chart, with a similar, small bearish "head and shoulders" pattern, which then falls off a cliff in early 2008. The reason that the two studies don't absolutely correlate involves the weighting factors of underlying stocks in the ETF itself, which at times will produce different results.

Nevertheless, the correlation is strong enough to warrant paying very close attention to this economic data, particularly for long-term trend traders.

Disclosure: No positions