Although most retailers are outperforming Wall Street's expectations, the sector is highly dependent on consumer confidence and consumer spending. A recent study conducted by the Reuters/University of Michigan Consumer Sentiment Index for April illustrated that retail spending is weak and will likely remain weak. The study suggests that personal financial conditions for consumers are deteriorating rather than improving at a ratio of 2-to-1, a trend that will likely put a damper on the retail sector.
Other potential threats that face the sector are unstable labor and credit markets. As long as these potential threats are present, a sustainable uptrend in the retail sector remains questionable.
A good way to protect against these threats is through the implementation of an exit strategy which identifies price points at which an upward trend could come to an end.
According to the latest data at SmartStops, these price points are: RTH at $102.66, XLY at $34.43, PMR at $18.85.Written by Kevin Grewal in Laguna Niguel, Calif. At the time of publication, Grewal had no positions in the securities mentioned.