On a technical basis, XLY could be vulnerable to a near-term pullback. The consumer discretionary sector “started to show weakness during the 4th quarter. As early as November, the XLY was showing cracks. Perhaps this was the markets way of hinting that higher rates wouldn’t set well with the consumer. The jury is still out on that, but boy do the charts look ominous,” according to See It Market.
Last year, XLY and rival consumer cyclical ETFs were boosted by richly valued stocks such as Amazon.com (NasdaqGS: AMZN), Netflix (NasdaqGS: NFLX) and Priceline.com (NasdaqGS: PCLN). However, frothy valuations throughout the discretionary space could be the catalyst for a near-term retreat.
On the charts, See It Market points out that XLY’s relative strength is waning while showing indications of a topping pattern.
Consumer Discretionary Select Sector SPDR
