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Retail stocks track for best month ever, but trader says only two are a buy

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Retail is on track for best month ever, but trader says only two look like a buy

Retail is rebounding.

The XRT retail ETF, which tracks retail stocks including Macy's and Nordstrom, is up 24% in April. That puts it on track for its best month ever.

Strategic Wealth Partners' Mark Tepper, however, does not trust in the retail rally.

"I don't think it's justified. I think the market is really pricing in that the economy is going to rebound a lot faster than it actually will. And when you look at this, a high unemployment rate typically doesn't bode well for highly discretionary items," Tepper said on CNBC's "Trading Nation" on Tuesday.

The best performers this month include Wayfair, Etsy, Best Buy, Kohl's and Nordstrom. 

"We're going to stick with the winners. These are the companies that embrace digital and more customer-friendly options before the crisis and that for us is Amazon and Target," said Tepper.

Amazon has risen 19% in April, while Target has rallied 20%. 

"Amazon's that 800-pound gorilla as it relates to e-commerce. They're hiring a bunch of people for a good reason. You throw in the cloud, which is really where this entire economy is headed. And don't forget streaming, so they literally are in three of the best industries that you could possibly be in given this new normal," Tepper said.

As for Target, Tepper says its focus on convenience should help it stand apart from the rest. He cites its 'drive up' offering as a way in which Target is making it easier for customers to shop.

"Once a consumer tries drive up, Target says that spending increases by almost 25%, so with more people doing that I would think in the future, Target should benefit as well from that," he said.

In the same interview, MKM Partners' chief market technician JC O'Hara said retail's rebound is impressive, though the charts suggest it may be short-lived.

"I really applaud their move off the lows. … But, you know what? I'm not fully buying into the 'let's buy all of retail story' right now," O'Hara said. "It's pretty significant that we take a look at the level that the XRT is approaching and that's 38. Thirty-eight dollars has been a key level of support going back to 2015. Now that support obviously broke earlier this year."

"Now we're retesting that support from below, which means it turns into resistance. So for me, buying XRT right here with a lot of these retail names just doesn't make sense. I need to see at least resistance break and then I might be a little bit more prone to get on board with the retail rally," O'Hara said.

The XRT ETF needs to rally 3% to clear $38. 

Disclosure: Strategic Wealth Partners holds Amazon and Target. 

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