The Equal-weight Consumer Discretionary ETF (RCD) and the Retail SPDR (XRT) hit 52-week highs in price and relative strength this week. New highs and relative strength in these two groups is very positive for the market overall. As its name suggests, the consumer discretionary sector is the most economically sensitive sector. Retailers feature prominently in this sector and retail spending accounts for some 2/3 of GDP. If performance of these two ETFs is indicative of consumer spending, then the economy and broader market are in good shape. Neither shows absolute or relative weakness for the moment.
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The first chart shows RCD within a large rising channel over the last 18 months. The ETF is now in the upper half of this channel and the upper trend line extends into the low 70s over the next few months. Support is marked in the 59-60 area. There is also a smaller rising channel taking shape since November. The ETF is nearing the upper trend line of this channel and getting short-term overbought. The second chart shows the Retail SPDR (XRT) with similar characteristics.
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