Trading Nation

Retail is having its best quarter in nearly four years, and one technical analyst sees more 'room to run'

Trading Nation: Retail’s winning week

A rally in retail stocks has Wall Street hopeful the industry's worst days are behind it. One technical analyst says the charts support investors' optimism.

"The retail rally has room to run here, perhaps not every day as has been the case, but for the first time in years you are buying weakness not selling strength," Rich Ross, head of technical analysis at Evercore, told CNBC's "Trading Nation" on Wednesday.

The XRT retail ETF is up nearly 5 percent for the week, putting it on track for its best weekly performance since December. A 10 percent rise for the second quarter is its best since the fourth quarter of 2014.

The XRT ETF's performance over the past few months has established a solid technical picture, says Ross.

"A beautiful run, a nice base of support, right back into obvious resistance at the January highs, that's a convenient place for a pause at $49, but our work tells us that we break out there," Ross said of its recent performance. "Keep in mind, short interest high, positioning is low. That's a recipe for a breakout."

Kohl's is one retail name Ross sees getting a big boost on the back of his expected industry rally. A breakout in the stock would put its shares above $80, breaking through a triple top that stretched back to 2002, he says. Once it breaks through $80, Ross targets $95 to $100, implying as much as 31 percent upside from current levels.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, is not sold on the retail rally. To him, nothing has really changed since the fears of a retail apocalypse in 2015 sent the XRT ETF to multiyear lows.

"This is a rally that is ultimately going to fade simply because retail itself is under a relentless assault and it's going to re-establish itself after a few more quarters," Schlossberg said on Wednesday's "Trading Nation." "The market now is buying what was a really oversold market, but now that we've reached all these levels, it's pretty much fully valued."

The headwinds that have faced retail in recent years should continue, says Schlossberg. Hurdles include internet competition, a millennial demographic not buying into the "shopping experience," and rising gas prices and interest rates eating into discretionary income.

The XRT ETF has surged 8 percent this year. It is still 5 percent from its March 2015 peak.