How Real Is the Retail Surge?

Retailers have reported better-than-expected sales in both of the monthly reports that have been issued since the horrendous 2008 holiday season. But do these hopeful numbers really point to a long-term sector recovery, or are they flashing yet another false dawn ahead of a renewed downturn that could land the weakest members of the group in bankruptcy court?

Frankly, I have little optimism when it comes to retail performance in the next 12 to 18 months. In my heart, I believe that wishful thinking is driving the most recent retail uptick, as American consumers deal with the conflict between dwindling personal resources and credit-fueled lifestyles they can no longer afford.

As a society, we're just not used to choosing between the things we need and the things we want. I fully expect this me-now-me-first attitude to dissipate as the full impact of the 2008 crash comes home to roost. And when consumers finally wake up to reality, along with stacks of unpaid bills, they'll be reining in their spending habits even further.

However, I'm willing to keep an open mind and just follow the price action for now, before reaching a final conclusion about the retail sector's longer-term outlook. To this end, let's look at the current evidence and see how the latest market recovery has affected the group's major players and exchange-traded funds.

NYSE Stocks (XRT) -- Daily eSignal

The SPDR S&P Retail ETF(XRT Quote) offers a more balanced view of the sector than the Retail HOLDRs Trust(RTH Quote), which is heavily overweighted in Wal-Mart(WMT Quote). XRT has been in a steady downtrend since 2007, when it topped out at $45.51. The last selloff wave began in September, when it plunged from a 10-month high near $35.