Strong Momentum Is Driving This Sector Higher

[Trading With Larry Benedict]( Strong Momentum Is Driving This Sector Higher By Larry Benedict, editor, Trading With Larry Benedict After a short burst at the start of the year, the Consumer Discretionary Select Sector ETF (XLY) rolled over and fell in February. XLY then bottomed out and slowly ground higher before rallying strongly mid-year. When we [checked in on XLY]( in mid-June (red arrow in the chart below), strong buying momentum in both Tesla (TSLA) and Amazon (AMZN) was driving that rally. Together, they represent around 40% of XLY’s holdings. But after rallying to 15-month highs, XLY reversed again in July. Then XLY found a base last month as buyers returned. Today, I want to see if XLY’s longer-term uptrend remains. 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XLY then began to slowly grind higher from March onward along with two bullish technical signals. - The RSI gained traction in its upper band, where it remained until XLY’s pullback last month. - The 10-day MA crossed above the 50-day MA and accelerated higher. That pulled the 50-day MA higher, adding to XLY’s bullish sentiment. When we looked at XLY on June 15, the RSI had gone into overbought territory again. XLY went on to make higher highs (upper orange line) despite the RSI flattening out (lower orange line). This type of pattern, when the RSI runs along overbought territory, is quite common when a stock is rallying strongly. But it also makes it vulnerable to a fall if buying momentum (RSI) reverses. And that is what we saw. As momentum lessened, the RSI fell through support (green line) and into the bottom half of its range. The 10-day MA also fell back below the 50-day MA. Yet in a repeat of January’s pattern, the RSI has recently returned from oversold territory (right red line). Take another look: Consumer Discretionary Select Sector ETF (XLY) [Image] Source: eSignal Our two MAs are also coming together, so another crossover is likely. So what am I expecting from 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. Bouncing Off Support After breaking into its upper band, the RSI has recently tested and bounced off support (green line). For XLY’s rally to continue (and its longer-term uptrend to hold), the RSI must remain in this upper range. Any break below support would pull XLY lower. The other thing to watch closely is our two MAs. As I mentioned, they have recently started converging. The 10-day MA breaking strongly above the 50-day MA and accelerating higher would further drive XLY’s longer-term rally. The next test for XLY’s rally is to take out its July 19 high. Regards, Larry Benedict Editor, Trading With Larry Benedict Mailbag Do you think XLY will keep rallying? Write in to feedback@opportunistictrader.com IN CASE YOU MISSED IT… [Sell Every Stock Except ONE (ticker revealed)]( Jeff Clark predicted the crashes of 2008, 2020, & 2022 – helping his readers dodge huge losses. He then helped double his readers’ money 13 TIMES in the last year alone… But after watching his OWN 23-year-old son lose -60% in risky crypto & tech stocks… Jeff is finally coming forward with his biggest WARNING yet. Jeff says: “Sell Your Stocks BEFORE The Stock Shock!” [Click Here to See Jeff’s New Warning.]( P.S. – Jeff refuses to watch his own son lose any more money in risky investments. 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