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From worst to first: Why retail stocks could keep riding the Trump rally higher

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Trader bets on retail making a comeback

The consumer discretionary sector has lagged the market this year, turning out the third-worst performance among the 10 sectors that were around at the beginning of 2016, but one technical analyst sees a big reversal in the cards.

"What we see here is that for the better part of the year, the consumer has actually been quite discretionary, as the group has been lagging. But now, as the year unfolds, we see this very bullish breakout," Ross, head of technical analysis at Evercore ISI, said Thursday on CNBC's "Trading Nation."

To play for a continued acceleration in the discretionary sector, Ross turns to retail stocks via the SPDR retail ETF (XRT) — which has already surged 12 percent in the past month.


Examining a chart of the XRT, Ross points to a base of support formed at $47, which the ETF has had difficulty breaking through since August. Now that it has broken through the resistance level, the XRT could head higher.

"I think we're looking at measured upside on that breakout to $51 from $48 — it's another 3 points of upside from current levels," Ross said. "That should set up the consumer discretionary sector for nice upside."

Top holdings in the retail ETF include Tailored Brands, Office Depot, Kohl's and Best Buy.

Tailored Brands, which owns retail chains like Men's Wearhouse, saw a spike in its shares this week after Jos. A. Bank, one of its properties, reported growth in same-store sales.