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

by on November 9, 2012 | ETFs Mentioned:

Stocks continued their slide for a second day as post-election profit-taking pressures were alive and kicking on Wall Street. Gloomy headlines from Europe were at the forefront after it was reported that finance ministers might delay their decision on when to release aid for Greece. Better-than-expected economic data at home went largely unnoticed; weekly jobless claims came in at 355,000 versus the expected 365,000, showcasing the ongoing recovery in the domestic labor market [see Free 7 Simple & Cheap All-ETF Portfolios].

With no major data releases take place overseas, investors will bring their attention back to the home front as consumer confidence data hits the street after the opening bell. As such, our ETF to watch for the day is the State Street Consumer Discretionary Select Sector SPDR (XLY, A), which may see an uptick in trading volumes as markets digest the latest sentiment reading and gain further insights into the health of the U.S. consumer. Analysts are expecting for the University of Michigan consumer sentiment to come in at 81.5, posting a modest decrease from the previous reading of 82.6 [see Consumer Centric ETFdb Portfolio].

Chart Analysis

Since hitting its most recent peak at $48.01 a share on September 14, 2012, this ETF has managed to carve out a fairly well-defined, downward slopping channel (red lines) for itself. Notice how XLY failed to summit the $48 level on three occasions, first on September 14, then on September 19, and most recently on October 5, 2012. Following these failed attempts, this ETF has gone onto post a series of lower-highs and lower-lows, perhaps suggesting that the bulls are waiting on the sidelines for a steeper correction before jumping back in [see 101 ETF Lessons Every Financial Advisor Should Learn].

Click to Enlarge

Seeing as XLY is trading near the bottom-half of its channel, jumping in long may appeal to speculative, short-term traders; however, given the series of lower-lows, were anticipating for this ETF to continue sliding closer to its 200-day moving average (yellow line), at which point buying pressures should ideally resurface [see also 3 ETF Trading Tips You Are Missing].

Outlook

If the latest sentiment reading sends a wave of worry across Wall Street, expect for the consumer discretionary sector to trade lower; in terms of downside, XLY has support between $44-$45 a share. A surprisingly bullish sentiment reading may, however, inspire a broad-based rally; in terms of upside, this ETF has resistance at $47 a share followed by the $48 level. 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.