Tuesday’s ETF Chart To Watch: State Street Consumer Discretionary SPDR (XLY)

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September 27, 2011 10:50am NYSE:XLY

Stoyan Bojinov: Stocks got off to a solid start this week as Wall Street took a bullish cue from European markets and rose on optimism that lawmakers would soon finalize a “plan of action” for Greece. Domestic equity indexes all finished in green territory on Monday, although trading was a bit choppy in the morning hours.

The market “needs some kind of concrete plan to stabilize” and it has “got to be something other than guesswork,” said Stephen Carl, head equity trader at The Williams Capital Group, referring to speculation that the European Central Bank may cut interest rates. On the home front, investors digested a plateful of gloomy housing market data as new home sales dropped 2.3% last month, marking the fourth consecutive month of declines. Gold continues to plunge lower as the precious metal broke below $1,550 an ounce just before Wall Street’s opening bell, managing to climb higher during the day and close around the $1,630 level.

U.S. Consumer Confidence is slated to come out this morning and investors will surely keep an eye on this report as it offers valuable insights about consumer spending and the general sentiment of buyers. Lower than expected or falling consumer confidence is typically associated with weakening demand for consumer goods, which makes the Consumer Discretionary SPDR (NYSE:XLY) our ETF to watch for today [see XLY Holdings]. Analysts are expecting for consumer confidence to rise to 46, a modest improvement from last month’s reading of 44.5. Stronger than anticipated confidence will likely boost XLY and restore some optimism back in the markets, while a worse than expected report will easily spark a sell-off given the mountain of “bad news” already weighing down on investors [see ETF Insider: Does Gold Still Glitter?].

Chart Analysis

Since peaking at $41.78 a share on 7/7/2011, XLY went for a downhill ride alongside the rest of the equity market, and the fund currently appears to have established support above the $34 level. In fact, this ETF has been establishing rising levels of support (see blue line) since bottoming out at $34 a share [see XLY Charts].

Click To Enlarge

We expect for XLY to drift higher, but remain range-bound, until the fund is able to establish definitive support back above its 200-day moving average [see Large Cap ETFs: Studs And Duds].


The rising level of support is certainly a bullish indicator, although investors should take it with a grain of salt since XLY is still considered to be in a “downtrend”, given that the ETF is still trading below its 200-day moving average [see XLY Technicals]. Investors who are long XLY should keep an eye on the fund as it nears $38 a share, at which point profit taking may follow as the ETF struggles to break past resistance along its 200-day moving average.

In terms of downside, a break below support at the $34 level would be concerning since the next level of support for XLY comes in at $30 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

Written By Stoyan Bojinov From ETF Database Disclosure: No Positions

ETF Database is committed to giving our audience, consisting of both active traders and buy-and-hold investors, information that, to our knowledge, is truthful and non-biased. [For more ETF insights, sign up for our free ETF newsletter or try a free seven day trial of ETFdb Pro ETFdb Pro Members Only.]

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