XRT – Amazon (AMZN) Destroys its Host

by CC March 31, 2017 1:28 pm • Chart of the Day

Following up on Dan’s post this morning on ETFs and Cramer’s “best of breed” thesis, there’s no better ETF to revisit than the relationship between Amazon (AMZN) and the retail etf XRT. 10 days ago we highlighted the odd relationship between XRT component AMZN and the bricks and mortar retailers that make up alot of the rest of XRT. Here were some thoughts from March 21st:

XRT is not just made up of the retailers Amazon is killing, and in fact it contains Amazon itself. But it is heavily weighted with the bricks and mortar retailers as Amazon destroys its host.

AMZN has basically flatlined for a month at all time highs, up 14% on the year, and looks ready to break out at any minute.

Since this post some of the bricks and mortar retailers have tried to get off the mat. Here’s Macy’s (M):

Here’s Nordstrom (JWN), not bad:

Kohls (KSS):

And a dead cat bounce attempt from Target (TGT):

And finally XRT itself, with a decent effort at a bounce but seemingly hitting some resistance:

XRT is up about 3.5% on this bounce. But as you can see it may be a dead cat bounce unless it gets above an established downtrend.

Which brings me to XRT component Amazon. As we suspected, it was poised for a breakout and is up about 5% to new all time highs:

So back to Jim Cramer’s original point. XRT contains Amazon, and its unclear whether XRT is dragging down AMZN in any way, but what is clear is that AMZN is best of breed in retail by a long shot. Buying XRT to own AMZN of course makes no sense. However a pairs trade of shorting XRT (or some of its most exposed components) and owning AMZN probably makes a ton of sense. If they rise together Amazon likely outperforms by a mile. And on the flipside, if retail/consumer fundamentals sneeze, the Macy’s, Nordstrom, and Targets of the retail world are much more likely to catch the worse cold.