Charts point to trouble for retail space amid busy week for earnings

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Brace for disaster when retail stocks report next week

It could be a make-or-break moment for the retail space as a busy slate of names highlights this week's major earnings reports.

The XRT retail ETF that tracks the space has underperformed the broader market this year, and one technician says the trend will continue.

"Retail is a big old mess," Cornerstone Macro technician Carter Worth said Friday on CNBC's "Options Action." "We know that in so many different ways, but most, of course, is just the poor performance."

"What you see is a well-defined downtrend," Worth said of the XRT's performance over the past year. "It has failed here repeatedly — over and over and over — and what's to say that it's going to bust through? Well, some would make that bet, but I'm not going to make that bet. I'm going to make the bet that it's going to fail yet again."

Worth also said that, even though the XRT has climbed recently with the rest of the markets, the ETF's underperformance in recent weeks has put it well behind the 8-ball.

"As it's ascending over the past month, and backing and filling, you're almost making new 52-week relative lows [against the S&P 500]. So, money committed here is underperforming other things one could have done with one's money — the definition of no alpha," Worth explained.

When you zoom out, the numbers look even more grim. Going back to 2014, Worth pointed out an even longer downtrend line relative to the S&P 500, highlighting just how poorly this ETF has performed over the long term.

"There's just nothing here," said Worth. "It's just been bad. … I don't like it. Short the XRT."

If you're still looking for a way to make money in this space, "Options Action" trader Dan Nathan has a trade for you.

"I would buy the 45-45 put spread, paying $1 for that. Buying one of the April 45-puts for $1.35, selling one of the April 41-puts at 35 cents. That breaks even down at $44. That's down about 3 percent, and you can make up to $3 between $44 and $41," Nathan explained.

"I like the range. I'm looking to April because I know we're going to hit a lot of earnings in March, but I also think the market has come a long way, and if we are going to pull back a little bit and give back some of that in the broad market, I think you want to pick on the losers or the relatively weaker sector, and this is one of them."

The XRT was trading around 1 percent higher on Monday.