Friday’s ETF Chart To Watch: Consumer Discretionary Select Sector SPDR (XLY)

by on October 19, 2012 | ETFs Mentioned:

The bears were quick to return following yesterday’s rally, sparking a wave of profit-taking on Wall Street fueled by lackluster fundamental developments. Housing market euphoria was overshadowed by a sluggish labor market report on the day; weekly jobless claims came in at 388,000, well above the previous reading of 342,000, causing uncertainties to resurface. To top it off, Google missed the earnings mark, which lead to a steep sell-off for the tech giant and sinking shares upwards of 8% on the day [see Free 7 Simple & Cheap ETF Portfolios].

Earnings reports will continue to dominate headlines and our focus will shift to the State Street Consumer Discretionary Select Sector SPDR (XLY, A) for the day as its third largest holding is slated to report quarterly performance results. Industry juggernaut McDonald’s (MCD) is slated to release earnings later today, which could have a major impact on XLY’s performance as this ETF allocates about 6.5% of its total assets to the stock [see also Consumer Centric ETFdb Portfolio].

Chart Analysis

Analysts are expecting for McDonald’s to rake in $7.16 billion in quarterly revenues along with earnings of $5.41 per share for the fiscal year. While shares of McDonald’s have been struggling to summit their 200-day moving average since June of this year, XLY has managed to steadily climb higher along rising support (blue line) year-to-date. This ETF, however, appears to be stuck in a short-term range; notice how shares of XLY have oscillated between the $46 and $48 levels since mid-September, failing to break out in either direction [see our ETF Technical Trading FAQ].

Click to Enlarge

As XLY is currently trading in the upper-half of its range, investors looking to jump in long may wish to wait for a pullback or observe how this ETF behaves as it nears resistance at the $48 level [see also 101 ETF Lessons Every Financial Advisor Should Learn].


If McDonald’s misses the earnings mark, selling pressures could drag down the entire consumer discretionary sector; in terms of downside, XLY has immediate support at $47 a share followed by the $46 level. On the other hand, a surprise to the upside may translate into a broad rally; in terms of upside, the next major resistance level for this ETF lies at $48 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.