Thursday, January 03, 2008

Retail in a Range and Blog Links for Thursday


* Retail Holders Holding Up - One facet of the bear thesis is that housing weakness will spill over to the broad economy as consumers retrench. Above we see the Retail Holder ETF (RTH) going back to May of 2001. What we see is that, during the recession of 2001-2002, retail stocks plunged precipitously. At present, we're not seeing such a decline. Rather, the retail stocks have been in a very lengthy trading range and are near the lower end of that range at present. That's something I'm watching carefully, both for implications re: the broad stock market and the economy.

* Overcoming Trading Fears - Corey offers a variety of resources across the trading blogosphere.

* Screening for Stock Reversals - The Short-Term Trading Blog offers an interesting implementation with TradeStation.

* Perspectives on Performance - Abnormal Returns finds some provocative posts on how much of what's written re: trading is untrue and how past outperformance doesn't lead to future outperformance.

* Blogger Predictions - Adam finds year end perspectives across the blogosphere, including predictions for the new year.

* Quite a Trading Track Record - Charles Kirk posts his trading track record. Maybe that stock screening machine really does work!!

* More on Housing - Barry Ritholtz takes a look at how far housing would have to fall to be in sync with rents.

2 comments:

T. said...

Regarding RTH and recession, I would argue that retail and consumer discretionary ETFs by themselves, so far, have not proven to be good indicators of an imminent recession, as one can see from the chart of XLY from 1999 to 2001 Q1, and 1999-2002. The precipitous collapse came in mid Sep 2001, as the economy was just stepping out of recession.

During Q1 2001, as the economy was already in recession (as later announced), XLY kept within its trading range and even gained quite impressively during Jan 2001.

I would like to argue, though, that the *relative* strength of XLY versus the Dow (lower pane in the chart) had been a better data point to estimate the risk of recession and coming out of it, as the 2001 chart clearly shows. If I am correct that it is the ratio that matters most, then currently the ratio clearly broke its trading range, precipitously and quite violently. If we are in a recession or will enter one in the next quarter(s), then, a good indicator for its ending would be a rising *ratio* of XLY:$INDU.

1999-2001
http://stockcharts.com/h-sc/ui?s=XLY&p=D&st=1998-01-01&en=2001-03-01&id=p64146092835

1999-2002
http://stockcharts.com/h-sc/ui?s=XLY&p=D&st=1999-01-01&en=2002-01-01&id=p52304885000

2005-2008
http://stockcharts.com/h-sc/ui?s=XLY&p=D&yr=3&mn=0&dy=0&id=p52304885000

Best,
T.

Brett Steenbarger, Ph.D. said...

Hi t.,

Excellent point. Retail can embrace consumer staples as well as discretionaries and thus may not capture economic weakness as readily as the latter. And, yes, XLY has certainly looked weak relative to large caps in general.

Brett