Each year Black Friday and Cyber Monday signal the beginning of the holiday season, and based on some early reports it looks as though consumers aren’t holding back. Cyber Monday 2016 was the biggest online sales day in history with sales totaling $3.45 billion, up 12.1% from last year. Even more impressive was that Black Friday 2016 was the first day in retail history that mobile revenue broke $1 billion. Using the recent news as a leading indicator, it seems like this holiday season will be a windfall for retailers. (See also: Black Friday Online Sales Hit a Record, Mobile Up.)
SPDR S&P Retail ETF
Strong upward momentum throughout November has nicely positioned the retailers for an impressive run into 2017. Taking a look at the chart of the SPDR S&P Retail ETF (XRT), a popular exchange-traded products used by retail traders for gaining exposure to retail companies, you can see that the recent price action has moved above a key level of resistance. Notice how the dotted trendline prevented the bulls from sending the price higher for most of 2016. Now that the price has closed above for several trading sessions, active traders will now expect this level to reverse roles and become support. Many bulls will likely try to open a position as close to the trendline as possible in an attempt to make the most of the risk/reward setup. From a risk management perspective, stop-loss orders will likely be placed below the trendline or the 200-day moving average depending on risk tolerance and outlook. (See also: Live Chart Tracks Top Retailers’ Performance This Holiday Season.)
Amazon.com, Inc.
It is nearly impossible to hold a conversation about retail companies without mentioning Amazon.com, Inc. (AMZN). As consumer spending habits shift online there are few players who are as well positioned to benefit as clearly shown by the five-year chart below. Notice how the 200-day moving average (red line) as propped up the price in the past and many will view a pullback to this level as a buying opportunity just like they did in October. Based on this chart, the strong uptrend is not showing signs of reversing any time soon and traders will likely want to buy on the dips. (For more, see: E-Commerce Takes Over Holiday Shopping.)
Children’s Place, Inc.
A strong earnings performance topped off with news of a quarterly cash dividend by Children’s Place, Inc. (PLCE), the largest pure-play children’s specialty apparel retailer in North America, sparked a rally in the shares that has caught the attention of active traders. Taking a look at the chart, you can see that the move has pushed the price above a key level of resistance and the bulls are now clearly in control of the momentum. Based on the extremely overbought readings on the Relative Strength Index, we’d expect that some traders will wait patiently on the sidelines for an opportunity, but in many cases, technical breakouts can often last longer than many expect.
The Bottom Line
Consumers are out in droves and based on the recent performance of Black Friday and Cyber Monday, it appears as though prices of retail companies are set to close higher by the end of 2016. At this point, results are pure speculation so many traders will likely choose to maintain their positions throughout the early part of 2017, at least until earnings results get released in late January or early February in order to maximize their exposure to strong holiday sales.
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