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If weakness is the new trend, Retail could be the leading edge

Quantitative easing is over. Quantitative tightening starts in October. These 4 charts could be signalling that Retail is the first segment to correct.

 

Chart #1 – This table shouts ‘Consumer’, ‘Retail’, ‘Household’

Is this a normal retracement or the start of something bigger? If weakness is the new trend, this could be the leading edge.

Last 5-day performance of S&P500 sectors

Last 5-day performance of S&P500 sectors | Source: SectorSPDR

 

Chart #2 – Retail Sales YoY forecast to fall to 2.70 in 12 months

According to TradingEconomics,

Retail Sales YoY in the United States is expected to be 3.10 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate Retail Sales YoY in the United States to stand at 2.70 in 12 months time.

US Retail Sales YoY forecast over past 12 months

US Retail Sales YoY forecast over past 12 months | Source: TradingEconomics, US Census Bureau

 

Chart #3 – Contracting MoM

US Retails Sales MoM contracting, negative

US Retails Sales MoM contracting, negative | Source: TradingEconomics, US Census Bureau

 

The ‘killer’ that is dragging down total performance in Retail Sales is the auto sales segment according to the US Census Bureau which released on 15 September the monthly sales for retail and food services for August 2017.

In a piece published on 19 September by CNBC, Moody’s Investor Service sees US auto sales shrink 3.6% and weakness to persist for 18 months.

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Screengrab from CNBC.com

 

Chart #4 – Consumer Staples XLP rising trend meets 15-month resistance

In my opinion, 3 out of 5 price features that define a high probability reversal pattern is visible in this chart of XLP – roadmap, resistance and chart pattern. The resistance here is prominent because of it’s 15 month duration. That spike in the last quarter that failed to break July 2016 top confirms the latter as the true resistance which also suggests that this year’s spike could be a blow-off top.

Maybe all of these signs are no big deal but it would be interesting alignment with FOMC’s announcement last night that quantitative tightening will start next month. Retail could be the leading edge of weakness here if there is going to be any correction.

XLP rising trend meets 15 months resistance

XLP rising trend meets 15 months resistance | Source: TradingView

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Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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