The consumer discretionary sector is often regarded as an economic barometer of consumer confidence and overall sentiment. While a variety of economic indicators have some investors concerned about an imminent pullback, charts of companies within the consumer discretionary sector are suggesting that prices could be poised to continue their strong run higher. In this article, we take a look at how followers of technical analysis will likely be positioning themselves over the weeks ahead.

Consumer Discretionary Select Sector SPDR Fund (XLY)

Traders who want to gain exposure to niche market segments often turn to widely traded exchange-traded products such as the Consumer Discretionary Select Sector SPDR Fund (XLY). Fundamentally, the fund comprises 64 holdings from across retail, hotels, restaurants, textiles, apparel, and luxury goods.

As you can see from the chart, a well-defined symmetrical triangle has been forming since the early days of summer. The defined trendlines are often regarded as a period of consolidation, and a break beyond is usually used as the sign of the next leg of the primary trend. Based on this chart, the proximity of the 200-day moving average (red line), which has acted as a strong level of support, suggests that traders will hold a bias toward a move higher. Target prices will most likely be placed near $135, which is equal to the entry point plus the height of the pattern, in the case of a move beyond the upper trendline.

Chart showing the share price performance of the Consumer Discretionary Select Sector SPDR Fund (XLY)
StockCharts.com

The Home Depot, Inc. (HD)

The recent pullback shown on the chart of The Home Depot, Inc. (HD) could be presenting active traders with one of best buying opportunities of 2019 from a risk/reward perspective. As you can see from the chart, the price of the stock has bounced off of the ascending trendline several times this year, and trend traders would expect this behavior to continue. As confirmation, active traders will also likely use the nearby support of the 200-day moving average to strengthen the case for a major move higher. With that said, some bulls may want to remain on the sidelines until they see the moving average convergence divergence (MACD) indicator rise above its signal line, which is a common short-term buy sign.

Chart showing the share price performance of The Home Depot, Inc. (HD)
StockCharts.com

Nike, Inc. (NKE)

The ascending triangle pattern that has formed on the chart of Nike, Inc. (NKE) over the course of 2019 was one of the most profitable for those who utilize technical analysis as part of their trading strategies. As you can see from the chart below, the breakout and subsequent retracement has provided trend traders will clear buy and sell points. The bounce off of the newfound support levels and the breakout shown by the blue circle are now capturing the attention of swing traders and could be pointing to a move higher in the early part of 2020.

Chart showing the share price performance of Nike, Inc. (NKE)
StockCharts.com

The Bottom Line

The prolonged uptrends in the broad financial markets combined with shaky economic reports have many traders concerned about an impending pullback. However, based on the patterns discussed above, consumer spending on products provided by the consumer discretionary sector appear to be stronger than many are expecting and could lead to a continued run higher for the early part of 2020.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.