A strong economy, improving consumer sentiment and the upcoming holiday are creating the perfect storm for consumer discretionary stocks. In case you aren’t familiar, consumer discretionary is a term given to goods and services that are deemed to be non-essential by consumers but are seen as desirable if they have sufficient funds to purchase them. Electronics and related forms of entertainment are commonly thought of examples at this time of year, but others could include items such as automobiles or clothes. In the article below we’ll take a look at several charts as they relate to this sector and try to determine where prices are headed from here. (For more, see: Consumer Discretionary Sector: Industries Snapshot)

Consumer Discretionary Select Sector SPDR Fund

One of the most popular exchange-traded products used by investors for gaining exposure to a diversified basket of companies that sell products that are deemed to be consumer discretionary is the Consumer Discretionary Select Sector SPDR Fund (XLY). Taking a look at the chart below, you can see that the price has been trading within a steady uptrend since early 2015 and the momentum has started to accelerate in recent months. Strong Black Friday, Cyber Monday and holiday spending reports suggest that the bulls have lots to cheer about and based on technical analysis the recent close above the dotted trendline suggests that momentum could continue for the first few months of 2017. Active traders will likely maintain their bullish outlook on the sector until the price closes below either the dotted trendline or the 50/200-day moving averages depending on their risk tolerance. (For more on this topic, check out: Let Consumer Spending Trends Lead You To Big Gains).

Amazon.com, Inc.

When it comes to consumer discretionary stocks, there are no better examples than Amazon.com, Inc. (AMZN). Taking a look at the stock chart below, you can see that the company’s stock is trading within one of the strongest uptrends that you’ll find anywhere in the public market. Active traders have patiently waited for pullbacks toward the support of major trendlines and moving averages to time their entry points, which you can see don’t come around very often. From a technical analysis perspective, the recent retracement toward the support of the 200-day moving average near $727.28 is providing one of the best risk/reward ratios of 2016 and could be an ideal time to position oneself for a continued move higher in 2017. (For more, see: The 3 Biggest Consumer Discretionary Stocks In The S&P 500 ETF).

Home Depot, Inc.

As consumer discretionary spending rises it is natural for most people to want to improve their living spaces. Without question one of the biggest beneficiaries of this shift in spending is Home Depot, Inc. (HD), which is evident by looking at the company’s long-term chart. Historically, the 200-day moving average (red line) has acted as a reliable guide for active traders who were looking to placing orders. The recent break above $130 is now suggesting that the bulls are back in control and that prices could be higher. Some active traders may want to wait several more weeks to see if the 50-day moving average will cross above the 200-day moving average, which would signal the next phase of a long-term uptrend. If this event occurs then 2017 could be a great year for investors in Home Depot, Inc. (For more, see: Home Depot's Results Continue To Impress).

The Bottom Line

Consumer discretionary stocks have benefited nicely from an improving economy, increased consumer spending and strong holiday spending. Based on the uptrends shown above, it doesn’t appear that the momentum is going to shift anytime soon and that the final days of 2016 could be the ideal time to increase exposure to this sector. (For more, see: Which Consumer-Related ETFs Should Investors Buy?)

At the time of writing, Casey Murphy did not own shares of any product mentioned above.

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