The retail sector should be getting clobbered…
After all, interest rates are surging. And people are having trouble keeping up.
That’s a recipe for tighter budgets and less spending, right?
Well… no.
The early data from Black Friday is out. And if the trend holds over the next four-plus weeks, another big holiday season could be in the works…
You see, Black Friday online spending came in at roughly $9.1 billion. That’s a record high. And most of the spending during this holiday season is still expected to take place in stores.
The fact is simple…
Costs are rising all over the place. But despite that, U.S. consumers are still spending a lot.
That’s playing out in many retailers’ reports, too…
Ross Stores (ROST) is up roughly 19% since it beat quarterly earnings estimates on November 17. And Foot Locker (FL) has surged around 20% since it did the same thing.
But that brings us to a few important questions…
Is now the right time to chase retailers? Was Black Friday just one good day? Or is a larger trend taking hold in the retail sector?
Let’s see what the Power Gauge says…
We’ll start with the chart of the sector-tracking SPDR S&P Retail Fund (XRT)…
Today, XRT earns a “neutral” rating from the Power Gauge. And as you can see, the system has rated this exchange-traded fund as either “neutral” or “bearish” for the past year.
We can get a further look into XRT using the Power Bar ratio…
Remember, the Power Bar ratio is a valuable weapon to help us figure out when to act. It compares the number of “bullish” or better stocks with those ranked “bearish” or worse within a specific industry or a broader index.
Today, XRT’s Power Bar shows 40 “bullish” or better and 18 “bearish” or worse stocks. As recently as last week, the setup was much more “neutral.”
So if nothing else, we want to keep XRT on our watch list.
Now, you’ll also notice in the above chart that XRT recently broke above its long-term trend line. That’s another good sign. It tells us that the fund is starting to look good for investors.
But the key word is “starting”…
The retail sector features some standouts today. And it appears to be trending in the right direction. But there simply isn’t enough overall strength to act – not yet anyway.
Yes, the sector got a boost from a record-setting Black Friday. And as the rest of the numbers come out this week, we’ll likely see more positivity in the retail sector.
But remember, the Power Gauge has rated this sector as “bearish” or “neutral” for an entire year. And for good reason…
The costs of goods are still soaring. And the Federal Reserve is actively trying to put a damper on market activity.
In other words, a lot of pressure remains on the retail sector.
So for now, let’s just keep watching closely…
We’ll want to see more “bullish” or better ratings for stocks within the sector. We’ll also want to see the sector maintain its recent breakout above its long-term trend line.
Then, the Power Gauge will likely see a “bullish” opportunity in retail.
That’s when we’ll know that Black Friday was more than just one good day of shopping.
Good investing,
Pete Carmasino
