Dying Retail Sector Hits All-Time Highs

JC Parets
August 15, 2018

From the desk of Tom Bruni @BruniCharting

The Retail Sector ETF $XRT just made new all-time daily closing highs. I was going to write an extensive piece on how we got here and the lessons we can take away about knowing what we own and exercising professional skepticism when we hear gross generalizations like "retail is dying", but I don't think I even need to make it that complicated.

Here's the example we typically hear from the journalists and analysts that are making the bearish retail case. Since 2007, Amazon is up 5,170% and JCPenney is down 97.5%. So that's it. Case closed. Traditional retail is dead, so go out and buy Amazon and short the rest of the sector. Right?

Click on chart to enlarge view.

Well, if it were that simple then the Equal-Weighted Retail ETF wouldn't be breaking out of a 3-year base to new all-time daily closing highs.

So what is the Retail Sector composed of exactly? A quick look at the fund allocation shows that there are 10 different industries represented here and department stores like JCPenney are only 5.75% of the weighting.

So what's my point? The index has 88 individual holdings and since the August 21st, 2017 bottom, the average stock is up ~53.5% and the median is up ~39.50%. 16 of its holdings more than doubled over that period. There were also 44 stocks that under-performed XRT and 14 stocks that were down over this period, so there was opportunity stock pickers on both sides of the tape, you just had to look. Yes, there are industries that are struggling within the Retail Sector, but there also others that are thriving. That's not unique to Retail though, there are leaders and laggards in every market at all times.

Click on table to enlarge view.

The Bottom Line: When it comes to market narratives, it's important to exercise professional skepticism and validate the claims being made by doing the work on your own. Quick soundbites might make you sound smart, but they rarely make you any money, which is why we're all here. So the next time you hear something that just doesn't sound right, I'd encourage you to do the work yourself as there's likely opportunity to take advantage of other's ignorance and/or laziness.

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Thanks for reading and let us know if you have any questions!

Allstarcharts Team

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