Retail sector may look weak but don't discount all its stalwarts; here's a look

One of the sectors I've mentioned recently as looking relatively weak is retail (RTH). You can see below, it's poking a bit under its 50 DMA. And selling volume was high the past several trading days. But it could still bounce along with the broad indices if we get that last expected push up before a bigger decline into March. Then again, retail usually has good seasonality into the winter holidays and not so much afterward as it eases off or consolidates. Interestingly, Moody's upgraded the apparel subsector on Thursday (1/14). So I pulled charts of Macy's (M) and Dillards (DDS) - sure enough, their charts aren't as bleak. They slid off their highs sooner, but look ready to start testing their 200 DMA and 50 DMA, respectively. And there's been a pickup in volumes in RTH on its recent pullback (which is somewhat bearish), but not so much in these names.

One strategy may be to offset a bearish position in the sector (either soon on spec, or after confirmation from a lower low) with a bullish position in the apparel-specific subsector. Now I'll be candid, this isn't an area I follow regularly. But it may be something tradable near-term. I checked the short interest in M and in DDS. It looks a little high in M (which is over 90% owned by institutions), and very high in DDS (at least 8 days to cover if my memory is correct). From a technical standpoint, it's noteworthy that there hasn't been as much selling volume in these two apparel-related names, as there has been in the RTH. That coupled with their testing of their nearby MA's could make them attractive long plays, even if only for a near-term trade. Stops can logically be placed at the levels representing failure to get support from these MA's.

Timing could be mid-day on Tuesday assuming we get the morning followthrough implied by the ChartsEdge weekly and by opex hangover, for equities broadly. Swing traders should be careful to take some profits on a good bounce from the MA's and then stop out on the rest if these reverse back down and under. But if they continue to get MA support then they could even be worth maintaining longer. I don't plan to keep updating about them necessarily, so if managing a position in them, just keep an eye on the technicals including these MA's, the volumes, and the Bollinger Bands for good measure.