Keep an eye on Retail Sector

Seems incredible, due to its past performance struggling an entire year, but now the retail sector could fuel the next bullish rally on Wall Street if it happens. You know, essentially, retail sales cover the durables and nondurables portions of consumer spending. And consumer spending typically accounts for about two-thirds of GDP and is, therefore, a key element in economic growth. And Wall Street stocks love strong economic growth, best if it comes without excessive inflation as the current environment.

Now, some of its main and iconical stores had great earnings this season, beginning last week with Walmart WMT, and continuing this week with Home Depot HD, Target TGT, and Lowe LOW. The ETF that follows this sector (XRT) hit historical lows past week, but after those company results, and also a nice Retail Sales July report, a buy-the-dip trade here isn't a bad idea now.

Check below the highlights: all major readings easily surpass the consensus. More: the non-stores sub-sector monthly sales jumped 2.8 percent following gains of 1.9 and 2.3 percent in the two prior months. This component is dominated by e-commerce which is making increasingly greater gains at the expense of brick-and-mortar stores. Department stores have been one of the victims (remember Sears last year) but not in July with a 1.2 percent sales jump.

Is a turn next in the retail sector? It's likely. And if Trump is considering tax cuts in payrolls or capital gains, and then approves them, due to its reelection, the sector XRT could explode.

Probably the best Retail Sales report of the year. Could a turn is next in this sector?

Technically, the price was at a low at $37.46 last week, below the up trendline that acts as a year-support. With all the year ranging (its ADX is below 20) between $40 and $46, now finally the retail sector show some positive feelings that could raise its price, first above its uptrendline support at $40.30, and then above its moving averages (specially the SMA200 at $44) that would be decisive to reaffirm a bullish bias in this ETF. Now its price is recovering due to reports and earnings mentioned above. The bullish signal would be given by the cross in the MACD line. So, after Jackson Hole decisions, an entry long in the short-term in this sector could be a profitable trade.
Charts helps, but I always check first the fundamentals and news before a trade, and this week the FOMC and Jackson Hole are decisive before making any trade. Management risk is the key.