Larry’s note: Welcome to Trading with Larry Benedict, my 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’m 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…

Even before the selloff in the broader market, one sector was already under a lot of pressure at the start of 2022…

After peaking in November 2021, retail sales were already trending down before 2022.

A key level has recently broken, so today I want to discuss what’s next for retail sales.

The SPDR S&P Retail ETF (XRT) fell a massive 30% from its all-time high (A on the chart below) in just four months.

But what makes the fall even more concerning is how XRT looks…

This exchange-traded fund (ETF) has slightly more than a 1% holding in any one stock. And unlike other ETFs, you can’t place the blame on just a handful of larger, underperforming stocks.

When we checked out XRT in February (red arrow), it was trying to find a base along with a support level (orange line) that dated back to February 2021. Take a look…



Source: eSignal

Holding this support level was the key for any chance of XRT retracing higher against its major downtrend.

The 10-day moving average (MA – red line) crossing down over the 50-day MA (blue line) in early December confirmed the downtrend.

Since then, both MAs have been trending down, adding to XRT’s bearish sentiment.

I wrote at the time that the first test for XRT was to hold support.

Back then, the Relative Strength Index (RSI) showed increasing momentum and was about to test resistance (green line). It would need to break back into the upper half of its range (and stay there) if XRT was to rally.

If XRT failed to do both, then we could expect to see another leg down.

And as the chart shows, that’s exactly what happened. Not only did XRT fall through support, the RSI tried several times to break resistance but failed.

So, what am I looking for from here?

Well, we know that the RSI will need to break above resistance (and hold) for any bounce in XRT to convert into a rally.

The 10-day MA breaking back above the 50-day MA would confirm such a rally.

However, I’m also watching that previous key level (orange line) closely…



Source: eSignal

When a price falls below support, that level can change into resistance (and vice versa).

Earlier this month, XRT tried to break back above its previous support level but failed.

While it’s still early in this new leg down – if XRT tests this level again (now resistance) and it holds – then that resistance level will become stronger. That could add further strength to the current move down.

The other big factor this week is the upcoming Fed meeting.

Consumers don’t know whether the Federal Reserve will increase rates by 0.25% or 0.5%. However, they do know that a rate rise is coming (with more to follow).

That’s all adding to the uncertainty (and volatility) not just for XRT, but the broader market as well.

Fortunately, that will offer plenty of trading opportunities. Because even after falling 30% – and the prospect of further falls ahead – there will be lots of countertrends against the major downtrend…

And we need to be ready to capture them.


Larry Benedict
Editor, Trading With Larry Benedict

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