Welcome to the weekend, folks, though I sure wish we could have started the weekend on a slightly more compelling foot. Not that stocks can't rebound from where they left off on Friday, but they're sure pointed in the wrong direction. Like we said in Thursday's edition though, there's actually a bit of an upside to any pullback from here. That is, (1) we would burn off our frothy values, and (2) we would set up a great fourth quarter rally... if any weakness persists all the way through summer. Somehow I don't think this volatile market would let stocks fall that far for that long though. In any case, we've got plenty to talk about market-wise, but I'd like to kick things off today with a look at last month's retail sales data. It was better than expected, calling into question the concerns raised by earnings reports from retailers like Macy's (M), JC Penney (JCP), and Kohl's (KSS) this week. No, Consumers Aren't Cutting Back Let's start with the bottom line first - retail sales were up 1.3% last month with automobiles, and were still up 0.8% when taking automobiles out of the equation. Both were better than the expected 0.9% and 0.6% growth rates, respectively. That's a pretty reassuring dose of data in light of the first quarter results a whole slew of retailers dished out this week, most of which complained about a lack of willing-and-able shoppers in their stores. Of course, April's sales weren't counted as part of Q1's numbers for most of the retailers that reported this week, so that got me thinking... maybe the first quarter was a rough one on retailers because consumerism is drying up. Fortunately I'm addicted to data because I insist on finding out the whole truth - for you and for me. I actually backtracked all the relevant data that would have impacted retailers' results in Q1. As it turns out, most of them are making excuses to disguise the fact that their merchandise and their marketing message just aren't on target. The chart below tells the tale, and to the extent it can't, I'll put it in words. Contrary to popular belief, retail spending grew on a year-over-year basis. Even apparel/clothing retail did ok, even if not great. A couple of words about the chart before you look at it. First and foremost, the small bars to the far right are for the second-quarter-to-date. We've only heard the numbers from one of the three months in the quarter, hence their lack of height. Again though, April's retail sales grew on an annualized basis. The other caveat with the chart below... the comparable quarter is the one four bars back from the completed Q1 bars. That's the first quarter's of 2015 numbers; the dates are at the bottom of the chart. It's pretty clear we saw growth on the first (orange), second (purple), and fourth (light blue) bars, but the third section (green) -- that's apparel and clothing -- is tough to see clearly. So, I'll tell you... Q1-2016's apparel retail store sales is just a hair better than year-ago levels. Most other categories were a lot better than Q1-2015's total. To help you out, I've put an asterisk on all the relevant Q1 bars. The point is, consumers ARE spending. THEY'RE EVEN SPENDING ON APPARAL. They're just not spending it at Macy's, Nordstrom's (JWN), Penney's, and Kohl's, even if we were led to think those retailers were fighting an unfair battle. The follow-up question: Who's getting all the money those big-box retailers were accustomed to winning? E-commerce venues are the knee-jerk answer, and I don't dispute sites like Amazon (AMZN) are taking a toll (more on that in a second). The above charts don't account for e-commerce-only venues though.... it's just brick-and-mortar companies. The better answer is, a lot of the smaller retail players are finally starting to cause significant trouble for the department store chains that have just missed the boat. That's not going to be an easy problem to fix, if names like Nordstrom and Macy's can fix themselves at all. All that being said, I do want to go back and flesh out what I said about the advent of e-commerce. Even without verification or proof, we all innately know online shopping is making things tough for traditional brick and mortar stores. What was a little shocking to me is the degree to which e-commerce is still outpacing overall retail sales growth. This table is from the Census Bureau's Q4-2015 look at e-commerce's growth versus overall retail sales growth. Not once in any quarter of 2015 did overall retail sales grow more than 2% on a year-over-year basis, yet not once in any quarter of 2015 did e-commerce grow less than 14% on a year-over-year basis. It's the kind of disparity you'd expect to see 15 years ago when online shopping was new. To see it still happening in this day and age? Man, that's a serious disparity o get a grip on. It's great for Amazon, but it's lousy for companies like Kohl's or JC Penney. There's no way to "fix" a shift moving that fast. I know this is higher-brow stuff, some of which was intuitive, and some of which wasn't. More important, it's the kind of stuff you should be absorbing on a regular basis if you want a true edge. This is also the kind of information John Monroe and the crew over at the Elite Opportunity are sorting through every week. You think it was an accident John was betting against Macy's and Nordstrom before their earnings reports? Of course not. John and the EO team have been doing this kind of digging for... well, since the Elite Opportunity newsletter was started. It's paid off too. EO members scored a 15% gain on Macy's plunge on Wednesday, and gained 14% on the implosion of JWN today. The Elite Opportunity has also been winning at the other end of this paradigm shift. The EO's long-term position in AMZN is up more than 50%, as John realized a while back e-commerce's disruption of brick and mortar retailing recently reached a critical mass. If you'd like to benefit from all of the EO crew's connecting-of-the-dots, become a member today. Your portfolio will thank you. Here's how, or just cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEO/v1/ Uh-Oh Well, that's not what the bulls wanted to see. Although the 0.85% pullback wasn't horrific (the S&P 500 didn't even reach a lower low today) Friday's weakness does pose a problem. As you'll see on the daily chart below, the setback today pulled the S&P 500 below the 50-day moving average line (purple). That's a big deal. The last time it was tested a couple of weeks ago, the same 50-day moving average line sparked a bullish bounce. I still contend we really want to see the VIX move above its upper band line at 16.24 before assuming the worst. Do notice the VIX wiggled its way above the 50-day moving average line today, however. When we zoom out to a weekly chart of the S&P 500 to eliminate all the recent noise, it becomes pretty clear what's going on. We've now logged our third straight week of losses, lower highs, and low lows in two out of the past three weeks. The recent peak also materialized where the last major high materialized. Is that a coincidence? Doubtful. There's always a chance things could turn around, but between the situation and the time of year, it's kind of tough to think that'll happen. I'm starting the hunt for where the bottom might end up forming. though I'll warn you now the bottom is more an issue of "how" rather than "where." Let's not worry about that just yet though - you can't do a thing about it until Monday anyway. For now, everybody just go enjoy your weekend. Looks like it'll be a good one for most of us.