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S&P 500 Consumer Discretionary Sector Entering the Leading Quadrant

The S&P 500 Consumer Discretionary sector (XLF) is an economically sensitive group, and as such is a proxy for the economic conditions of the US economy, and specifically US consumer spending. After spending the past 15-weeks residing within the Improving Quadrant of the Relative Rotation Graph (RRG) XLY has entered the Leading Quadrant this week. XLY has been the third-best S&P performers appreciating 21.8% from the 3/23/20 low as compared to Energy (+33.6%) and Communication Services (+22.4%). This further suggests the emergence of a leadership role within the S&P sectors.


XLY is a market-cap weighted ETF. As of 5/18/20, the largest industries within XLY are Internet and Direct Marketing Retail (29.22%), Specialty Retail (28.65), Hotels Restaurants, and Leisure (19.06), Textiles Apparel and Luxury Goods (7.19), and Multiline Retail (6.43). The top 10 Consumer Discretionary names by market-cap weights are AMZN (23.96%), HD (12.93), MCD (6.54), NKE (5.48), SBUX (4.35), LOW (4.32), BKNG (3.15), TGT (3.06), TJX (2.91), and DG (2.24). These 10 stocks when combined, account for nearly 68.94% of the overall XLY ETF.


Technical View of XLY:


In the past week, XLY has quietly emerged as a new leadership S&P 500 sector as it has convincingly cleared above its pivotal 61.8% retracement (113) from its Feb-Mar 2020 decline as well as its 50-day ma (106), 200-day ma (117.5), and recently the 4/29/20 high (118.21). The above technical developments suggest XLY can extend its Mar 2020 rally toward 122.97-123.18 (Jul/Sep 2019 highs), and above this to 126.43-129.33 (2/24/20 gap down), and then 132.09 (2/19/20 all-time high). Initial support rises to 110-110.25 (May 2020 lows), and below this to 106 (50-day ma), and then to 101-102 (4/7/20 gap-up breakout).


It is also important to note the XLY vs SPX relative strength trend is nearing a major breakout. A breakout here would further reaffirm its leadership role within SPX. The recent MACD breakout above its 2018-2019 highs also confirms strong price momentum. The SCTR score of 86.5 has been rising. This indicates strong technical credentials from both a near-term to long-term perspective and suggests a test of the 2018-2019 highs near the 90s range.


The current relative leaders within XLY are AMZN, DG, TSCO, EBAY, CMG, TGT, HD, and NKE.


The improving relative leaders are BWA, HAS, AAP, YUM, DLTR, ORLY, AZO, and SBUX.


Another interesting point worth mentioning is only 16 of the 34 names within the XLY ETF reside within the Leading and Improving Quadrants. This would imply investors and traders need to be stock selective and favor the relative strength names within this S&P sector.


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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