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The case for buying the dip in beaten-down retail stocks

Retail stocks tumble
Retail stocks tumble

The SPDR S&P Retail ETF (XRT) is having its worst week since December 2016, but Boris Schlossberg says there is a strong case for buying the most recent retail dip.

The XRT fell 1.3 percent Thursday, and is now down more than 4 percent for the week. A few names within the ETF, such as Gap and Ulta Beauty, have fared even worse, tumbling 7 percent and 14 percent, respectively this week through Thursday.

Yet the economic backdrop could conspire to improve the outlook for the group, says Schlossberg, managing director of FX strategy at BK Asset Management.

"In the very near term, I think the key thing that drives it is just consumer wage growth," he said Thursday on CNBC's "Power Lunch." "As long as wages are going to be relatively healthy, I think the Christmas season is going to be pretty good, so buying the dip is not a bad idea at this point."

Indeed, according to the September employment report, wages have grown by 2.9 percent year over year.

But Max Wolff of Disruptive Technology Advisers suggests that even retail bulls might want to stay away from the XRT.

"[There are some weird names in this ETF]," Wolff said on "Power Lunch." "I think there's a little bit of a trade here between getting away from the ETF, and maybe pick some of the guys that are really badly beat up."

Specific names Wolff likes include Five Below and the Gap; he would stay away from auto-exposed stocks and Netflix.

The XRT is down 9.5 percent year to date.