The Consumer Discretionary Sector has had a strong 2019 and ETFs covering that market segment appear ready to take off, writes Suri Duddella.
The Consumer Discretionary segment involves products and services that aren't essential priorities like food or household supplies, but consumers like to spend their extra money on hobbies, luxury and comfort. The performance of consumer discretionary stocks are correlated to the general state of the economy as consumers spend their extra money or income at their disposal.
Consumer discretionary is a broad category that consists of consumer durables, travel, hotels, casinos, restaurants, leisure, fashion, television, department stores etc. In 2019, the Consumer discretionary sector as represented by the Consumer Discretionary Select Sector SPDR Fund ETF (XLY) gained 25.5% compared to 2018's gain of 0.32%.
The S&P Select Consumer Discretionary ETF (XLF) is currently trading in a Symmetric Triangle pattern. Here we discuss how this pattern is also visible in few other Consumer Discretionary patterns.
Symmetric Triangle Patterns
Symmetric triangles can be characterized as areas of indecision. Market price-action pauses during these indecision periods as the forces of supply and demand nearly become equal. Volume tends to be diminished during this consolidation phase. Eventually, a resolve (breakout or breakdown) from the upper or lower trend lines will result and prices will explode out the Symmetric triangle.
Usually, Symmetric triangles break in the direction of its prior trend, hence signifying its Continuation Pattern status. Please note that there are many cases where Symmetric triangles result in a reversal pattern also after its initial breakout in the opposite direction, giving the trader the opportunity to trade the failure side of the pattern.
XLY Symmetric Triangle pattern
The following chart shows XLY forming a Symmetric Triangle pattern on its daily chart. XLY traded between $112.60 and $124.60 between July 2019 and December 2019. If price closes above $123.50, it may signal a breakout trade. Target are set at $130 and $137. A stop-loss can be placed below the last low pivot $119 (see chart).
While the broad sector appears ready to breakout, several individual components of the Consumer Discretionary space also have compelling chart patterns that we will discuss tomorrow—stay tuned.
Find more of Suri’s work at surinotes.com.
