Larry’s note: Welcome to Trading with Larry Benedict, the brand new free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us.

My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row. And, I’ve been featured in the book Market Wizards, alongside investors like Paul Tudor Jones.

But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it…

You don’t need to be an economist to know just how important personal consumption is to the economy. It accounts for around 70% of GDP…

While that number covers all the goods and services people consume, a big part of that spending goes into retail sales.

Today, I’m going to focus on how much retail sales have skyrocketed over the past couple of years.

Stuck at home due to the pandemic (with an unprecedented level of monetary stimulus from the Fed), people got to work refurbishing their homes, which is why so much money flowed into consumption.

Take a look at the weekly chart of the SPDR S&P Retail ETF (XRT) below to see how this all played out…



Source: eSignal

Before COVID, retail sales were virtually flat.

On the left side of the chart, the 10-week moving average (MA – red line) closely followed the long-term 50-week MA (blue line) until March 2020.

Then as the price of XRT took a tumble, the stock went on a massive roll. Within a year, XRT tripled in price and continued to trade at an elevated level.

When we looked at XRT on October 13, that spending seemed to have peaked (red arrow). And in the process of forming an arc, XRT looked to be rolling over and was about to break lower.

The Relative Strength Index (RSI) at the bottom of this chart was also trending down and showing declining momentum.

However, XRT went on to rally again into November – breaking out to fresh new highs. This coincided with the RSI bouncing off its 50% support level (horizontal green line).

But, this rally was short-lived. As we ran into the end of 2021, XRT was again looking vulnerable.

In mid-December, XRT started to trade below its 50-week MA. It was also the first time the RSI fell below support (50%) since the original uptrend got underway in 2020.

Right now, the 10-week MA is right on the verge of crossing down over the 50-week MA. That would be the first time this has happened since the major uptrend got underway in 2020.

If the 10-week MA crosses below the 50-week MA and stays there, this will begin to signal that a new downtrend is underway.

In the meantime, there are two things I’m watching.

Let’s take another look at the chart…



Source: eSignal

Apart from the blip higher when XRT spiked in November, the RSI has been trending down since early 2021. If this trend continues, XRT will run into oversold territory (lower grey horizontal line at 30%) over the coming weeks. A bounce off that could see a short-term rally in XRT.

The other is the most recent short-term price action on the chart.

Over the past month, XRT has traded down to the green support line before retracing higher. While it’s still early, I’m looking to see if XRT can find a long-term support around this level…

If this level holds, and the RSI turns up, this could provide the opportunity for a quick long trade (potentially over just a few days). Even if it goes against a new emerging downtrend, we could still pick up a nice profit.

However, if XRT continues to trade lower and break below this short-term support, then that’ll confirm a new major downtrend in XRT is starting to gain momentum. And that could provide a big shorting opportunity.

The good news is that we have the potential to generate profitable trades whichever way XRT trades from here.


Larry Benedict
Editor, Trading With Larry Benedict

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