The sharp drop in consumer sentiment in December supported the negative outlook that many have for this sector but Moneyshow’s Tom Aspray likes two stocks in this market leading sector.

So far the correction in the stock market has been quite mild but many are nervously still looking for a more serious correction, if not a major decline. We still could see some heavier selling but I expect the market to be well supported at lower levels.

The encouraging earnings from Alcoa Inc. (AA) may be stabilizing the market and a strong close this week will suggest that the correction is already over. This is likely to catch the market by surprise as dire forecasts over the impact of the debt ceiling are adding to the “wall of worry.”

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As a result of the recent fiscal cliff deal, most consumers will have less disposable income and therefore many are not positive on the consumer sectors and ETFs like the Select Sector SPDR Consumer Discretionary (XLY). The chart above shows that XLY (in blue) is continuing to outperform the Spyder Trust (SPY).

Two stocks in this sector look ready to lead this sector and the overall market higher.

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Chart Analysis: Leggett & Platt Inc. (LEG) is a $3.8 billion home furnishing and fixture company that currently has a yield of 4.2%.

  • The weekly chart shows that the major resistance at $27 was overcome in early November.

  • After consolidating for seven weeks, LEG closed sharply higher last Friday suggesting that the major uptrend is ready to resume.

  • The weekly relative performance broke its downtrend, line b, in mid-October and led the price breakout. It has just turned up from its rising WMA, which is a positive sign.

  • The volume was strong last summer as the on-balance volume (OBV) broke through major resistance, line c, in July.

  • The OBV has held above its WMA over the past few weeks.

The daily chart of Leggett & Platt Inc. (LEG) shows a broad trading range, lines d and e, that has been in effect since early November.

  • A strong close above $28.28 will complete the trading range with near-term upside targets in the $30-$31 area.

  • In December 2004, LEG made its all-time high at $30.64.

  • The daily relative performance is now testing the uptrend that goes back to the June lows, line f.

  • The daily OBV is very close to completing its continuation pattern, lines g and h.

  • The OBV is holding above its WMA.

  • LEG has a monthly pivot at $27.08 and a quarterly pivot at $26.67, which represent first support.

  • The monthly S2 support is at $26.26 with further support at $25.93.

NEXT PAGE: Another Stock Poised to Lead Market Higher

Tickers Mentioned: Tickers: XLY, SPY, AA, LEG, AN