The retail sector has been hot. Shares of the SPDR Retail ETF (XRT) are up over 16% from their April lows this year, but the chart suggests the rally may be nearing an end.
There is an interesting distribution of a candle formations on the XRT daily chart, which have identified short and intermediate term tops. The final piece of one of these eveningstar patterns formed in Monday’s session.
An eveningstar pattern is a three period bearish reversal formation. It consists of a large upside day, followed by a narrow opening and closing range day, and completed by a large down day. It represents a transition from bullishness-to-bearishness.
The eveningstar patterns on this chart have marked intermediate or shorter term trading highs. The one that was completed in the last session is a particularly ominous pattern, because it also looks like the right shoulder of a head and shoulders top.
Head and shoulder neckline support is situated in the $48.50 area which is also intersecting with the uptrend line drawn off the lows of the three month rally.
Moving average convergence/divergence has made a bearish crossover and Chaikin money flow is tracking lower. These indicators are signalling a loss of positive price momentum and positive money flow.
If support on the XRT chart fails the head and shoulders pattern projects a downside price target in the $46.50 area.