Why It's Time to Jump on This Retail ETF

XRT is approaching a historically bullish time of year

Managing Editor
Feb 22, 2018 at 8:49 AM
facebook twitter linkedin


Retail stocks dipped with the broader equities market earlier this month, and a lackluster earnings showing from Walmart Inc (NYSE:WMT) earlier this week didn't help matters. However, just like now looks like an opportune time to buy the Walmart dip, the SPDR S&P Retail ETF (XRT) could also rebound soon, if history is any indicator. With a slew of the sector's earnings expected next week, we decided to take a closer look at XRT.

XRT touched a two-year high of $49.08 on Jan. 24, before pulling back with the broader stock market. However, the exchange-traded fund (ETF) found support atop its 80-day moving average, in the vicinity of a 50% Fibonacci retracement of its rally from November lows to the aforementioned peak. Shares of the fund closed yesterday at $45.34, and are on the cusp of a historically bullish time of year.

Per data from Schaeffer's Quantitative Analyst Chris Prybal, XRT has averaged a March gain of 4.2% since inception -- its best month of the year. That's followed by an average April gain of 2.8%. From current levels, a 4.2% boost next month would put XRT around $47.24. A subsequent 2.8% burst would have the shares around $48.57 -- back near two-year highs.

A round of solid retail earnings next week could also spook several shorts. On average, 11.2% of retail stocks' float is sold short -- the second-highest of all sectors we track. XRT itself saw short interest grow nearly 36% in the past two reporting periods. It would take these bears about a week to buy back their positions, at the fund's average daily trading volume. That's plenty of fuel for a short squeeze to propel XRT higher.

Echoing this, the ETF's Schaeffer's put/call open interest ratio (SOIR) of 2.12 ranks higher than 82% of all other readings from the past year. This indicates that near-term speculators have rarely been more put-biased during the past 12 months.

 

Stop leaving money on the table with the same old broken options trading approach...

There is no options strategy that more perfectly capitalizes during earnings season better than this simple call and put buying strategy. Perfect for aggressive traders looking to recover their suffering portfolios so far in 2022. With the simplest possible options strategy, Schaeffer's team with 100+ years of options trading excellence, target 200% gains on every single trade. So many trades are being beaten down by the market, but don't be one of them! Don't waste another second... join us right now before the next trade is released! 

 
Schaeffer's Daily Bulletin Offer
 


 


 
Special Offers from Schaeffer's Trading Partners