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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