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Discretionary ETFs Show Signs of Life


The consumer discretionary sector is the worst-performing group in the S&P 500 this year. Reflecting the sector’s laggard status, three of the 10 worst non-leveraged exchange traded funds on a year-to-date basis are explicit discretionary plays or have ample exposure to the sector.

That does not mean investors should write-off the sector altogether and with the second half of the year nearly here, some discretionary ETFs are starting to show signs of a legitimate rebound. For example, the Consumer Discretionary Select Sector SPDR (XLY) , the largest consumer discretionary ETF by assets, is up almost 2% in the past month and currently resides last than 1% below its 52-week high. [Data Could Support Discretionary ETFs]

XLY’s technicals indicate more upside could be afoot for the ETF.

“XLY is currently forming the handle portion of a 16-week long cup with handle pattern. Note that both the 10 and 40-week MAs are now pointing in the same direction,” notes Deron Wagner of Morpheus Trading Group.

It appears investors will need some convincing regarding the discretionary sector’s rebound. Amazon (AMZN) has been a drag on ETFs like XLY and the Vanguard Consumer Discretionary ETF (VCR) . Home Depot (HD), another major component in many discretionary ETFs, is one of the worst-performing stocks in the Dow Jones Industrial Average this year. [Discreet Decline of Discretionary ETFs]

As a result, only three ETFs have seen larger year-to-date outflows than XLY while VCR has lost more than $196 million.

Still, the group offers potential.

“XLY is forming the handle portion of the pattern, holding support from the rising 20-day EMA. We are monitoring the price action for a potential buy entry. The action should hold above $65 to keep the pattern on track in the short-term,” added Wagner.

The discretionary rebound is also showing signs of being broad-based. Since June 10, the Market Vectors-Gaming ETF (BJK) is up 4.5% while the PowerShares Dynamic Media Portfolio (PBS) is up 3.4% in the past month.

Consumer Discretionary Select Sector SPDR


Tom Lydon’s clients own shares of Amazon.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.