Retail stocks could rally another 10 to 15 percent from here, says technician

Retail stocks are turning a new leaf in the new year.

After ending 2018 with their worst quarter since 2008, the group has rallied more than 6 percent since the first trading day of the year. Craig Johnson, chief market technician at Piper Jaffray, believes that the retail move is "a bounce that we can trust" and thinks that the retail-tracking ETF (XRT) could actually return to a key level in the charts.

"We have corrected about 28 percent from peak to trough, we had a nice relief rally, and now we're reaching a very important inflection point," he said Monday on CNBC's "Trading Nation."

The inflection point Johnson refers to is the recent reversal from retail's December low. "If we see a move further from here, you can see quite a nice move back up to the 200-day moving average," he added.

The XRT's 200-day moving average currently sits at around $47.53. This means Johnson believes a 9 percent rally is possible, which would take retail back to mid-November levels.

Additionally, Johnson said that while smaller retail names like Five Below and Stitch Fix have surged, more "defensive names" like Dollar Tree are also "reversing longer-term downtrends." This leads Johnson to believe that many retail stocks could actually see 10 to 15 percent upside.

Gina Sanchez, CEO of Chantico Global, believes that "the consumer is healthy here," which is positive for retail. However, Sanchez also warns that there are a number of underlying factors that could still hit the group.

Namely, Sanchez thinks wage growth could be a "double-edged sword" for retail. While she does believe that it is ultimately a strong sign for the group, she also expects that "underlying costs are also going to go up for retail," along with earnings growth that may pare or go flat.

But ultimately, Sanchez believes the consumer landscape could be a boon for retail.

After closing up 3 percent Monday, retail stocks were down slightly Tuesday.

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