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This sector’s underperformance is a head scratcher

Interest rates and gas prices are lower as is the official unemployment rate. So why aren't we seeing retail stocks soar?

Since the spring, retail sales (excluding auto-related sales) have been up about 3 percent on a year-over-year basis. Over the past four months, the price of crude oil has fallen 23 percent, leading to lower gasoline prices. And, the yield on the benchmark U.S. Treasury 10-year note is around 2.2 percent, far lower than the 3-plus percent that had been anticipated for now at the start of 2014.

But while it may be up 5 percent in the last 90 days, the ETF tracking the retail sector (trading under the ticker RTH) has been underperforming the broad market S&P 500 index by around 1 percentage point this year. The RTH is up just 3.4 percent year-to-date.

With so many tailwinds in retail's favor, why has the retail sector been, well, boring?

Gina Sanchez, founder of Chantico Global, said even though things like lower gas prices are putting more disposable income in people's pockets, fear is keeping them from spending that money on retail goods.

"The U6 number [measures of underemployment] is still quite high, the labor participation rate is continuing to fall, and wage growth has been really tepid," explains Sanchez, a CNBC contributor. "Top that off with the fact that the duration of unemployment… is still very high. It's up above 37 weeks. That makes people not want to spend their money because they think, 'Oh, no. If I lose my job, how long will it take me to find another one?' So everybody wants buffers. That's keeping money in the bank or in the mattress. It's not causing people to spend money."

Ari Wald, head of technical analysis at Oppenheimer & Co., has a different take on retail stocks and particularly the RTH. He notes that from a longer-term perspective, the ETF has been doing quite nicely. In 2013, it returned 38 percent, well outperforming the S&P 500's 29 percent.

But Wald is now cautious on the RTH. "The technicals are a bit mixed here," he said. "There's good news and there's bad news."

On the upside, the RTH has held a $60 support level since breaking above it this summer. On the downside, the slope of the ETF's 200-day moving average is flattening. "That's really just a sign that long-term momentum is beginning to moderate here," Wald said.

Those looking to buy the sector may want to pick specific stocks rather than the sector ETF, recommends Wald. "If you're in it, I think you can stay in it and [there is] no real reason to sell right now," he said. "If you want to buy it, I think you have to buy it at the stock level. I really wouldn't want to buy this basket of stocks given this moderation of momentum. Looking at the constituents, there are some stocks within that ETF that I would want to stay away from."

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