Houghton and Atkeson

Prepare for a Pullback: Short S&P Retail Sector SPDR

by Houghton and Atkeson   05/22/09

Editor's Note: While Sam Collins is on vacation, we've asked Nick Atkeson and Andrew Houghton, editors of Big Money Options, to provide you with a trade of interest until Sam returns June 1, though we will not be publishing The Trade of the Day Monday, May 25, in light of the market holiday. Look for the next trade Tuesday, May 26.

S&P Retail Sector SPDR (XRT) -- The retail sector is one of the "beta" groups that went from worst to first during the past several months and especially during the market rally starting on March 9.

It appears that the group may have hit a near-term high on May 6, as investors have switched from the beta trade to a recognition that consumer spending may be subdued for some time to come, given the persistent unemployment statistics and the continuing de-levering process that is underway. Additionally, U.S. gasoline prices have been steadily climbing and may pinch consumers once again.

As a hedge against further market pullback, you may want to consider shorting and/or buying puts on the XRT.

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