SPDR S&P Regional Banking ETF (KRE) & SPDR S&P Retail ETF (XRT)
It has been a tough week for stock markets around the world. August has historically been one of the seasonally weaker months of the year already after earnings season winds down and investors go on summer vacation. This week, concerns related to last week’s downgrade of Fitch’s US credit rating and this week’s soft trade numbers out of China have also rattled investor confidence.
Although most major indices and industry groups have declined over the last week, this action appears to be a common correction with markets bending but not breaking. Most country and sector ETFs which we track are on moderate, if any, reversals, with few outright pattern breakdowns at this point. Recent sector action in the cash flow movement (measured through the BPI in Sector Scopes) suggests a market which has shifted from slightly overbought back to neutral.
Sector action indicates that groups which had previous underperformed and have been playing catch up lately have continued to attract support including Mid Caps, Small Caps, Financials, Energy, Health Care and Industrials. One area which has been particularly weak technically of late has been Alternative Energy. Commodity action has been mixed with Energy contracts rallying but Metals, Grains, and Softs (particularly Lumber) struggling.
In terms of business news, on the economic side, the focus is on inflation numbers, starting with US Consumer Prices today, and continuing with Canadian and UK reports next week. Retail Sales figures for the US and China, plus the start of North American housing data may also attract attention. While the main part of earnings season is wrapping up, earnings for retailers begin to roll out next week, starting with Home Depot on Tuesday and Walmart on Thursday.
In this edition of Equity Leaders Weekly, we look at continuing rebounds in regional banks and US retailers/drug stocks.
SPDR S&P Regional Banking ETF (KRE)
After financial troubles at some regional banks crushed the sector back in March, US regional banks bottomed out in May, stabilized through to the start of earnings season in July, and have started to recover over the last month.
In recent weeks, US regional banks have been climbing a wall of worry, shrugging off recent credit rating downgrades form Standard & Poors, but responding favorably to banks passing their annual stress tests earlier this summer and to the latest round of earnings reports.
The SPDR S&P Regional Banking ETF (KRE), has been bouncing back since May, establishing a higher low then completing a bullish Double Top breakout in July. Since then, KRE has continued to climb, extending its rally into a bullish High Pole and chipping away at the March selloff.
Initial upside resistance may appear in the $52.05 to $54.70 zone based on a horizontal count, a downtrend resistance line and previous column lows. Initial support appears near $47.10 based on a 3-box reversal.
SPDR S&P Retail ETF (XRT)
Trading action in retailer stocks can provide investors with insights into the health of consumer spending and the individual consumption side of the overall economy. Retail stocks, represented by the SPDR S&P Retail ETF (XRT) peaked in November 2021, two months ahead of the broader US market and bottomed out at the same time in October of 2022. While major indices like the NASDAQ and the S&P 500 have recovered in 2023, XRT has been spinning its wheels in a sideways trend for over a year now.
With bullish sentiment broadening out and US retail sales numbers showing resilience, XRT has been on an upswing since May, completing bullish Double Top and Spread Double Top breakouts which have extended into a bullish High Pole.
With US retail sales and retailer earnings starting in the coming days, the retail sector may attract increased attention from investors. XRT is approaching a downtrend line near $68.25 with additional resistance possible at previous column highs near $72.50 and $74.00. Initial support appears near $64.95 based on a 3-box reversal.
Disclaimer: SIACharts Inc. specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment whatsoever. This information has been prepared without regard to any particular investors investment objectives, financial situation, and needs. None of the information contained in this document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. As such, advisors and their clients should not act on any recommendation (express or implied) or information in this report without obtaining specific advice in relation to their accounts and should not rely on information herein as the primary basis for their investment decisions. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. SIACharts Inc. nor its third party content providers make any representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein and shall not be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon. Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice.