Going Shopping With A Leveraged Retail ETF

Broadly speaking, retail stocks and the corresponding exchange traded funds have been duds this year. Strip out the retail ETFs with heavy exposure to Amazon.com Inc. AMZN and the performances look even worse.

Amazon is a difference maker. The VanEck Vectors Retail ETF RTH has an almost 16.7% weight to Amazon and that ETF has outperformed the largest retail ETF this year by 80 basis points.

"In terms of year-over-year earnings growth, six of the thirteen retail sub-industries in the S&P 500 are predicted to report growth in earnings for the fourth quarter, led by the Internet Retail (52.1 percent), Drug Retail (20.8 percent), and Home Improvement Retail (9.6 percent) sub-industries. “On the other hand, seven of the thirteen retail sub-industries in the S&P 500 are predicted to report declines in earnings, led by the Home Furnishing Retail (-14.0 percent) and Hypermarkets & Super Centers (-9.0 percent) sub-industries," according to a FactSet note.

While gains have been hard to come by with retail ETFs, adventurous traders have recently been rewarded with the Direxion Daily Retail Bull 3x Shares RETL. RETL, which attempts to deliver triple the daily returns of the Russell 1000 Retail Index, is up 18 percent over the past three months and currently offers an appealing technical outlook.

“From a technical perspective, RETL is currently in a short term uptrend. The price action has been trending higher with the 7-day moving average currently above the 20-day moving average. The RSI is currently at 59.39, above generally accepted uptrend technical level of 50. A continuation of current RSI trend in the short term could continue to support the current uptrend.The MACD is above the signal line and above the zero line. A continual widening spread between MACD and the signal line continues to support the current technical trend. Also worth noting, the percentage of positive days in the last 30 days is currently above 60%, supporting a higher chance of a continual uptrend in the short term,” according to Direxion. 

At the fundamental level, RETL's allure is easily explained. The Russell 1000 Retail Index is light on battered apparel retailers. Additionally, that index is heavy on Internet retailers and home improvement names, two of the better performing areas of the consumer discretionary space this year. Those industries combine for over 46 of the index's weight.