Technically speaking, a look at the chart shows a ‘V’ type bottom and a test of the May highs. That test has failed and pulled back to test support near the 200 day moving average. Money flow into the sector has been negative since the first week of August. This is not a bullish sign for the sector to move higher. We could say a cup and handle is forming, but we will have to see how the near term pullback plays out. If that pattern played out it would be bullish short term of the index

Outlook: Growth is the key. GDP was improved, but it’s not accelerating enough to carry the index higher near term. The outlook for growth is still a challenge as we heard last week from Fed Chairman Bernanke. This leads me to a trading range outlook pending something changing in the short term. The financials are hurting the index as well as the industrials both have significant weightings in the index. There are plenty of positive comments concerning these stocks in the media, but they have yet to materialize.

Trend: Sideways or Limper is how I would classify the intermediate term trend. Short term we have been in a uptrend the last five weeks. The current pullback is putting that trend in jeopardy of being broken. The longer term outlook is leaning towards are trading range. On the S&P 600 that would be a low range of 345 and upper range of 400. The Russell 2000 index is 660 to 760 currently. A break of support at the 718 mark would open the way to a test of the lows. Fundamentally the outlook has been positive on the assumption of growth on the horizon for the second half of 2008. We will have to see how that materializes, but the economic data isn’t supporting that notion from my view.

Strategy: Patience. I like the longer term outlook, but the short term pullback will have to play out first. 383 is a key level from my view to hold above with an eventual break above the 400 mark. A break below the 373 mark short term would be negative in that it will maintain the current trading range and continue sideways. The break will also open the door to a test of the low near the 345 mark. Trading the range would be one approach short term, but be aware of the risk associated with that type of trading activity. The best approach is to let this short term noise play out and see how this unfolds for a play to the upside or downside.

For more on the retail sector see our post on theETFexchange Daily.
 

TOP 10 COMPONENTS (as of 06/30/2008)	SUBSECTOR WEIGHTINGS (as of 6/30/2008)
COMPANY NAME WEIGHT Oceaneering Int'l 8.06% Patriot Coal Corp 7.78% St. Mary Land & Explor 7.55% Unit Corp 7.42% Helix Energy Solutions 7.24% Ansys inc. 4.67% Atwood Oceanics inc 6.57% Itron Inc. 4.26% Southern Union 13.78% Penn Virginia 5.96%	SUBSECTOR NAME WEIGHT Utilities 5.28% Cons Disc 12.66% Consumer Staples 3.80% Energy 11.46% Financials 15.62% Healthcare 12.50% Industrials 17.69% Info Tech 17.18% Materials 3.60% Telecom Services 0.21%