Retail is set to reverse.
That's the call Mark Newton, founder and president of Newton Advisors, made Wednesday on CNBC's "Trading Nation" after seeing the SPDR S&P Retail ETF (XRT), which tracks the sector's top stocks, fall more than 3% week to date in the wake of weak earnings reports from Kohl's and Urban Outfitters.
Macy's bolstered the bear case Thursday morning after its weaker-than-expected fiscal third-quarter report.
"We really just haven't seen sufficient weakness ... to really think that retail is starting to turn down that sharply," Newton said. "To put this in perspective, retail really initially turned down last August, almost to the tune of about 28%, but since August of this year, retailing has been up over 15%, so it's almost double what the S&P has done during that time.'
As of Wednesday's close, the XRT had climbed nearly 13% from its Aug. 28 low compared with a more than 8% gain for the S&P 500.
"Technically, ... we've actually made some pretty good progress in the XRT," Newton said, citing a chart of the ETF.
"If anything, this still suggests that this can actually move higher," Newton said. "We haven't seen enough weakness. If we get down under 42.83, that's really the level for me. That's the lows from late October. That would certainly be cause for concern and [I'd] think that we could see weakness, but for now, this longer-term downtrend from last year has turned into an uptrend."
The XRT was at $43.49 on Thursday, up slightly a day after falling more than 1%.
Newton added that while it's worth highlighting the week's big underperformers — namely Urban Outfitters and Victoria's Secret parent L Brands, the latter of which made a 52-week low Wednesday — the last few months have also brought about some under-the-radar winners.
"We see a lot of outperformance from stocks like GameStop and Tiffany and Target since August that have been up over 45%," he said. "There's been a lot of good outperformance in this sector since August, and the sector, at least near term, still looks good to me."
Parts of it were also looking increasingly attractive to Nancy Tengler, chief investment officer at Laffer Tengler Investments, she said in the same "Trading Nation" interview.
"You see the good management teams, the high-quality retailers, delivering despite the environment," Tengler said. "That would be a Target and a Walmart. We heard [Walmart CEO] Doug McMillon this morning on your air saying that they had a lot of levers to pull around the tariffs and he expected a good holiday. They delivered great earnings, really strong e-commerce growth. We really like that stock."
But there was one underperformer Tengler liked even better at these levels.
"Home Depot's sell-off, I think, is an opportunity for investors that have been out of the stock, because it wasn't a fall-off in sales that caused them to miss earnings as much as it was an increase in IT spending to get their pro-B2B business up and running," she said. "So, we'll be picking away at that one, though we already own a pretty full position."
And while Tengler said she'd soon be selling her shares of Tiffany, which is scheduled to report its fiscal third-quarter earnings on Wednesday and is fielding a buyout offer from luxury brand house LVMH, another popular name was also beginning to strike her fancy.
"Things like Starbucks are starting to look attractive again," the CIO said. "I had mentioned on your show I'd been selling, and now, with the pullback, I think there's an opportunity to add to holdings modestly. So, those are kind of some of the areas we're in. We're out of Costco completely now just due to valuation and a big run up in the stock."
Disclosure: Laffer Tengler Investments owns shares of Home Depot and Tiffany.
