XLY Consumer Discretionary ETF Suffers Bullish Cup-and Handle Relapse

The consumer discretionary sector has been one of the driving factors behind the massive S&P 500 rally from the 2009 low. In the beginning of June, XLY sported a unique technical pattern that may provide clues for the S&P 500.

Contrary to popular belief, the U.S. consumer has done their fair share to lift stocks.

From its 2009 low to its July all-time high, the S&P 500 (NYSEArca: SPY) has gained 197.78%.

From its 2009 low to its July all-time high, the Consumer Discretionary Select Sector SPDR ETF (NYSEArca: XLY) has gained 329.84%.

Because of its economically sensitive nature, the consumer discretionary sector can provide early clues for the S&P 500.

On July 2, the Profit Radar Report examined a potentially bullish XLY cup-and handle formation and wrote the following:

“XLY already broke above the dashed trend line and the short solid red line marking the handle high. This is the beginning stage of a break out.

However, trade has yet to overcome the March high, which was a red candle high and should be meaningful resistance. It is also said that cup and handle breakouts after a long-term rally are less powerful than ones at the beginning.

Regardless, the initial breakout is according to technical analysis guidelines and sustained trade above the March 7 high at 67.85 will further extend the XLY (and probably overall stock market) rally.”

Although the beginning stages looked promising, XLY wasn’t able to overcome ‘cup rim’ resistance at 67.85 and the cup-and handle has basically been a non-event (like pretty much everything else lately on Wall Street).

The pattern for other consumer discretionary ETFs like the Vanguard Consumer Discretionary ETF (NYSEArca: VCR) looks similar.

Another little nugget the XLY chart offers is that there is short-term support around 66.80.

Similar to XLY, the S&P 500 is also trading right above meaningful short-term support.

Here’s a closer look at S&P 500 support: S&P 500 Short-Term Forecast: S&P Bounces at Key Support

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

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Weekly ETF SPY: XRT – Profitable Detail about Retail

The retail sector measured by the SPDR S&P Retail ETF trades less than 1% below its all-time high. But with recent market weakness, it may be beneficial to look at sectors that carry magnified down side risk, such as XRT.

The retail sector has been on fire, with the SPDR S&P Retail ETF (XRT) soaring 378% from its 2008 low to its 2013 high.

XRT is less than 1% below its all-time high and the recent weakness thus far looks like nothing more than a tempest in the teapot.

But what goes up must come down and after a 378% gain there’s a decent ‘coming down’ risk. Discussed below are some key support levels likely to trigger a deeper correction and support levels likely to halt the decline.

Wednesday’s drop registered a bullish percentR low-risk entry, which sent prices higher on Thursday. The percentR low-risk entry occurred against support (prior high/low) around 68.70 (see daily XRT chart).

This is now important short-term support. A daily close below 68.70 would trigger a sell signal for aggressive investors (with a stop-loss just above 68.70 (as long as prices remain above 68.70, there’s not much to get excited about).

Additional support is provided by the 50-day SMA at 68.34. After that comes a small ‘air pocket,’ an area without significant support. This is followed by a support cluster at 65.5 – 63.

In short, sustained trade below 68.70 should take XRT to 63 – 65.5. There’s more down side risk, but we’d have to evaluate the chart structure once we get there.

The weekly XRT chart shows prices cradled by a 4+ year parallel trend channel. The dashed center line of this trend channel has provide support numerous times and may do so again. If it doesn’t, watch out for lower prices.

Aside from the UltraShort Consumer Services ProShares (SCC), which provides 2x inverse exposure to the consumer discretionary sector, there is no short ETF that tracks XRT or the retail sector. However, investors may short XRT or buy/sell options.