XRT and KATE could each benefit from bullish seasonal trends and a short-squeeze situation
Are retail stocks about to rebound? If past is prologue, the answer is "maybe," according to data compiled by Schaeffer's Quantitative Analyst Chris Prybal. Specifically, he found that the
SPDR S&P Retail ETF (XRT) has averaged a 3.4% gain in February since its inception.
If XRT -- last seen 0.6% lower at $42.93 -- stages a bounce this month, there's potential for a short-squeeze rally to catalyze its upside move. In the last two reporting periods, short interest on the exchange-traded fund (ETF) jumped 49% to 33.4 million shares. At XRT's average trading volume, it would take a week to buy back these positions -- plenty of pent-up purchasing power.
That said, a February advance is far from a foregone conclusion. After all, the shares have been in free-fall since their December high at $48.26, tumbling 11%. Moreover, XRT is staring up at historical resistance in the $43-$44 area, also home to the descending 10- and 20-day moving averages. If that's not enough, this zone roughly corresponds with the ETF's 61.8% Fibonacci retracement of its post-election surge, per the chart below:
One retail stock that could assist XRT in a potential turnaround is
buyout target Kate Spade & Co (NYSE:KATE). The shares have historically
outperformed in February, with positive returns in nine of the past 10 years -- and an average one-month gain of 12%.
Amid the aforementioned buyout buzz, KATE has outstripped the broader S&P 500 Index (SPX) by 20 percentage points over the previous two months. This, despite the fact short interest jumped 135% in the past two reporting periods. If the stock can keep its upward momentum going, a short-squeeze situation could create additional tailwinds.
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