After rallying strongly at the end of last year, the Consumer Discretionary Select Sector ETF (XLY) has had a subdued 2024.
The broader market has hit fresh all-time highs. But XLY has yet to break above its December 20 peak.
One of the main reasons behind its poor performance has been the market’s ongoing negative sentiment toward Tesla (TSLA). Tesla and Amazon (AMZN) account for around 40% of XLY’s holdings.
But TSLA recently rallied off its lows. So that could give XLY some much-needed momentum.
Today I want to check out XLY’s chart to see where it is heading from here…
Three Movements
The 50-day Moving Average (MA, blue line) in the chart of XLY below has three parts.
First, we see the rally up to its peak in July. A retracement through October follows. Then a fresh rally kicked off in November:
Consumer Discretionary Select Sector ETF (XLY)
Source: e-Signal
That peak in July coincided with a diverging pattern between the Relative Strength Index (RSI) and the stock price (orange lines). That pattern often leads to a change of direction.
XLY then rolled over and fell with the RSI slipping into its lower band (below the green line).
Yet the RSI made a double “V” and rallied from oversold territory (lower grey dashed line) in October. So XLY’s downtrend petered out, and it started to rally.
That rally began to build momentum with the RSI breaking back up through resistance.
When we last checked out XLY in November (orange arrow), we were looking for the RSI to bounce off support if XLY was to continue rallying.
The two moving averages (MAs) were quickly converging. So we were also waiting for the 10-day MA to break above the 50-day MA as confirmation of XLY’s uptrend.
And as the chart shows, that is what we saw.
Take another look:
Consumer Discretionary Select Sector ETF (XLY)
Source: e-Signal
But XLY topped out on December 20 and reversed. The RSI formed an inverse “V” in overbought territory (upper grey dashed line).
XLY retraced into the start of 2024, where it consolidated sideways until the start of this month.
That sideways pattern coincided with the RSI making a tight zig-zag pattern around resistance (green line).
But with the RSI recently back into its upper range (red circle), things are again looking promising for XLY.
So how will things unfold from here?
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What to Watch
If the RSI can hold support and gain further traction in its upper band, that should give XLY’s emerging up move further momentum.
The longer the RSI can remain in its upper range, the stronger that move could be.
But just like we saw in December, we need to keep watch in case the RSI inverts from overbought territory.
The other thing to keep tabs on is the MACD.
Having rolled off its peak in December, it flattened out earlier this month and started to track higher. The blue MACD line bullishly broke above the orange Signal line.
If the MACD line continues to accelerate higher (dragging the Signal line with it), that will give further impetus to XLY’s rally.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict