Why the recent retail rally will be short-lived: Technician

Suddenly, retail stocks are back in fashion, but one technician warns investors shouldn't buy into the recent trend.

Retail names climbed Monday after posting their best week of the year Friday. The XRT Retail ETF is now up nearly 6 percent this month, but Matt Maley of Miller Tabak says if history is any indication the group is about to take another downturn.

"[The XRT] has gotten [to the 200-day moving average] a couple of times this year only to roll over in a significant manner," he said Friday on CNBC's "Trading Nation." "So part of this rallying seems to be short covering, where a lot of names have been beaten down badly or are starting to bounce back, but I'm not sure those rallies can really last for very long."

Indeed a number of laggards in the group have seen somewhat of a resurgence of late. Names like Foot Locker, J.C. Penney, Dick's Sporting Goods and Macy's have rallied a respective 32, 17, 17 and 9 percent in November. All of those companies, however, are still hovering near 52-week lows.

Adding to Maley's doubt is the seasonal patterns that he has seen in the space. According to Maley, typically retail stocks rally in October through November, only to start falling right after Black Friday.

Mark Tepper, CEO of Strategic Wealth Partners, also doubts the retail renaissance is here to stay. While Tepper sees the strength of consumer, unemployment and wage data favoring retailers for the time being, he believes the presence of Amazon will still continue to weigh on traditional names.

"The retail environment is very challenging as the brick-and-mortar businesses are getting crushed by Amazon," he said on "Trading Nation." "So I think what you're going to see over the course of the next few years is the extinction of the dinosaurs, like Macy's, the companies that have absolutely no value proposition whatsoever other than being the low-cost provider."

The one retail name Tepper would buy at this time is Wal-Mart, given its efforts and capabilities to innovate in an online space.

Though retail stocks were tracking higher Monday, the group is still down more than 5 percent this year.

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more

Connect