After a strong showing in 2014, the Consumer Discretionary ETF (XLY) has churned sideways into early 2015. This type of price action would typically indicate consolidation, but considering the wide swings in 2014 and recent retail sales numbers for December (not good!), it’s clear that the Consumer Discretionary ETF is looking for direction. And whichever direction it takes, the stock market may follow.
Here’s a few reasons why I have XLY on my radar as a critical market ‘tell’ for the next market move.
1.  Big week for economic data – The Consumer is at the heart of the US economy. And ever since the poor retail sales number came out for December, the economic “story” has changed: from cautiously optimistic to “making ends meet”. This week likely won’t provide as much clarity as investors would like, but it will add some texture to the terrain. Check out my recent post on Fed Week for a list of economic reports and implications. Is this just a blip, or will the consumer (and economy) struggle into the first half of the year?
2.  Apple (AAPL) Earnings tonight – Like it or not, Apple is a very visible symbol of today’s consumer. Its products are spread across America like a well buttered piece of bread. Did they sell enough iPhones, how were the holidays, etc… As global as Apple is becoming, their earnings report tonight will be tied to the consumer.
3. Â The Price Action and Chart for XLY – The Consumer Discretionary ETF (XLY) has traded in a range of $68-$73 over the past 2 months. $68 also represents the September 2014 highs, so that level is a must hold for XLY (and stock market). It also represents the neckline of a potential bearish head and shoulders pattern. In order to turn the ETF bullish again, price will need to breakout above $71.75 (constructive), then above $72.97 (52 week highs).
XLY Consumer Discretionary Chart
Low interest rates and stronger home sales have buffered the consumer, but the economy is still mixed and the consumer still seems to be finding his/her way. This likely has a hand in the recent choppy, sideways movement on the the SPDR S&P 500 (SPY) and XLY. While Apple may have a short-term headline impact on the consumer, the verdict will show up in price action of the Consumer Discretionary ETF.
Follow Andy on Twitter: Â @andrewnyquist
No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
