SPDR S&P Retail ETF (XRT) & Invesco Dynamic Leisure and Entertainment ETF (PEJ)

With the exception of a one-day relief rally, equity markets have continued to struggle, impacted by a number of cross currents. Much of the focus has been on the political tensions between Ukraine and Russia. In addition to impacting equity market sentiment, this situation has reignited interest in Gold as a defensive haven in times of crisis over the last week sending the yellow metal to its highest level since last June. Crude oil has been up and down over the last week, but remains elevated with both WTI and Brent holding above $90.00/bbl.

Other issues continue to simmer away in the background. Most notably, a rotation away from stocks which had benefitted from the stay-at-home economy, and back toward sectors which could benefit from an end to pandemic restrictions continues to accelerate. Shopify became the latest victim of this change with its stock plunging 16.0% yesterday after management warned that sales growth could slow as online pandemic shopping slows. Meanwhile the Daily Stock Reports of the last three days have featured travel booking and hotel companies, a sign that leisure/travel stocks have been moving back up the rankings in SIA Charts relative strength reports.

Inflation and the prospect of more central bank rate hikes this year also remains a concern. This week, the US 10-year treasury note yield climbed back above 2.00%, a key psychological level which aligns with the long-term inflation and interest rate targets of several major central banks.

Monday is a holiday in the US and Canada but around that there are a number of significant economic and corporate reports. We continue to move through the peak of earnings season in Canada with reports on the way from miners and retailers this week which then segues next week into bank earnings season. In the US results are set to roll out from major retailers starting with Walmart today.

In this issue of Equity Leaders Weekly, we take a look at current trends in the retail and leisure sectors.

The coming week has the potential to be quite active for the retail sector. Yesterday, the US government reported a strong rebound for its retail sales in January (3.8% vs street 2.0% and previous -2.5%). Tomorrow retail sales numbers are due from the UK and Canada. Earnings from several major retailers are also on the way including Walmart and Canadian tire today, followed by Home Depot and Macy’s on Tuesday.

The SPDR S&P Retail ETF (XRT) appears to be near a potentially key technical turning point.

Following a failed breakout attempt back in November, the ETF came under significant selling pressure, completing two bearish double bottom breakdowns before the damage was finally contained last month just above last February’s low. Since then, the ETF has shown signs of stabilizing and even completed a bullish Triple Top breakout, but the chart is currently in a column of Os and a bearish SMAX score of 4 indicates continuing weakness relative to the asset classes.

A move back up above $82.00 would put XRT back into an X column with next potential resistance near $85.30 and then $90.00 based on previous column lows and the latter converging with a horizontal count. A decline below $77.20, however, would complete a bearish spread triple bottom pattern and signal the start of another downleg.

Companies most impacted by COVID restrictions have tended to fall into three groups, those related to moving people around (airlines and cruise lines), those which provide places to stay or things to do (hotels, casinos, restaurants, movie theaters), and travel booking companies. The first group tends to be lumped into the transportation sector, while the latter two groups tend to be found in the leisure (consumer discretionary) or internet (communications) sectors.

This week and next, several hotel and other travel companies have reported or are scheduled to report earnings results. So far the numbers have been mixed, but with more companies in the leisure space moving up enough to be included in the Daily Stock Report recently (Expedia, Booking and Marriott), it appears that sentiment toward the group may be turning more favourable, but individual stock action could vary depending on the results.

The Invesco Dynamic Leisure and Entertainment ETF (PEJ) has a bullish SMAX score of 7 indicating strength relative to the asset classes. The ETF also has been on an upswing lately within its broad $44.00 to $55.00 trading range, having recently completed a bullish Double Top breakout.