This Lackluster Sector Is Coming Back to Life

[Trading With Larry Benedict]( This Lackluster Sector Is Coming Back to Life By Larry Benedict, editor, Trading With Larry Benedict Up until the start of this month, the Consumer Discretionary Select Sector ETF (XLY) was having a lackluster year… It started off 2023 by initially rallying strongly. But XLY peaked and reversed in February, giving up a big chunk of those gains. It then traded sideways in a tight band for three months. Now strong buying momentum in its two largest constituent stocks – Tesla (TSLA) and Amazon (AMZN) – has seen XLY start to rally strongly. Combined, those two stocks represent just under 40% of XLY’s holdings. Only halfway through June, XLY is already up 11% for the month. Yet that strong buying is pushing XLY into overbought territory. So today, I want to see how things might play out from here… Recommended Link [The One Ticker Retirement Plan]( Over the Shoulder Demo Now Available [image]( Market Wizard Larry Benedict crushed the market in 2022. But he didn't do it with a “traditional” method… For a limited time, he’s sharing a free over-the-shoulder “demo” of his strategy in action. It takes less than 10 seconds… [Watch it here.]( -- A Common Reversal Pattern On the left-hand side of the chart below, you can see the tail of XLY’s downtrend, which began back in November 2021. The August peak was a lower high than earlier declining peaks. And XLY bottomed out in late December. Consumer Discretionary Select Sector ETF (XLY) [Image] Source: eSignal XLY then found a base when the Relative Strength Index (RSI) began to track higher (orange line) out of oversold territory. XLY began to rally in conjunction with two bullish signals: - The RSI broke through resistance (green line) and rallied strongly into the upper half of its range. - The 10-day Moving Average (MA, red line) broke above the 50-day MA. Both then tracked higher. That sharp rally in January came to an end, though, with a common reversal pattern… As we saw when we [checked in on XLY]( on March 13 (red arrow), the RSI made an inverse ‘V’ and reversed (left red circle) from overbought territory. That caused XLY to roll over and fall. XLY’s retracement petered out when the RSI recovered and began moving along support in the upper half of its range. As the chart shows, that sideways pattern began to develop into an uptrend at the start of June. Take another look: Consumer Discretionary Select Sector ETF (XLY) [Image] Source: eSignal That move higher coincided with the RSI rallying strongly… and a bullish signal from our MAs. The 10-day MA crossed above the 50-day MA and then tracked it closely. It then began to accelerate above it toward the end of May. That strong momentum is now bullishly pulling the 50-day MA higher too. But the RSI is once again back in overbought territory (right red circle). So what am I looking for around here? Free Trading Resources Have you checked out Larry's free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just [click here]( to check it out. Watch for Any Decisive Move Down When a stock surges like XLY, we can expect to see a pullback as profit-takers sell out of their long positions. However, we need to let the RSI dictate any reversal and not preempt any move. That’s why I’ll continue to watch the RSI closely. It is well inside overbought territory. But we need to see it make a clear move down before looking to enter a short position. The other thing I’ll keep a watch on is our MAs… As I mentioned, the 10-day MA is currently accelerating strongly above the 50-day MA. This suggests that the current up-move might still have further to play out. However, if the RSI makes a decisive move down and the 10-day MA’s climb stalls, then that will increase the odds of a pullback. Regards, Larry Benedict Editor, Trading With Larry Benedict Mailbag Where do you think the consumer discretionary sector is headed? Send us your thoughts at feedback@opportunistictrader.com. IN CASE YOU MISSED IT… [The #1 stock for 2023]( Investment expert Brad Thomas knows how to pick stocks. He bought Starbucks back in 2006… He bought Nike in 2003… And he and his team delivered a near-perfect track record from March 2020 to September 2022. Now, for a limited time, he’s revealing his #1 stock for 2023… [Get its name here.]( [image]( [The Opportunistic Trader]( The Opportunistic Trader 55 NE 5th Avenue, Delray Beach, FL 33483 [www.opportunistictrader.com]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. The Opportunistic Trader welcomes your feedback and questions. 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