Consumer Discretionary Stocks Fuel Rally


There's been much said and written about rapidly-declining crude oil prices ($WTIC).  But one thing makes perfect sense to me.  When American consumers save TONS of money when filling up at the pump, they tend to spend it elsewhere.  It's simply what we like to do - SPEND!  So it's not too surprising to me that many consumer discretionary companies are beginning to see huge benefits in terms of price appreciation.  First, check out the breakout on Friday on the XLY:

The Federal Reserve, for the past several years, has been flooding the market with liquidity through its quantitative easing (QE) programs.  One of their mandates has been to keep interest rates artificially low for an extended period of time to encourage the rebound of home prices and to help beleaguered home construction stocks.  Their plan has been paying off.  Home construction stocks ($DJUSHB) have been in a very bullish uptrend during the entire bull market run off the 2009 lows.  Not only have home construction stocks been in a clear uptrend, but they also have been consolidating in a bullish ascending triangle pattern for the past two years.  A critical breakout occurred on Friday above the 550 level with this pattern measuring to perhaps the 710 level.  The S&P 500 tends to perform exceptionally well when home construction stocks are on the rise.  Check out this chart:

Strength in home construction stocks and the above breakout are likely to lead to outperformance in the next few months in this group.  We will be adding several new stocks to our Trading Watch Lists early next week, including one homebuilder that just blew estimates away recently.  If you'd like to try our EarningsBeats service, we're offering a one-time $.97 special for a month (normally $97) - just CLICK HERE.
Happy trading!

Tom Bowley
Chief Equity Strategist

Tom Bowley
About the author: co-founded Invested Central in 2004 and served as the site's Chief Market Strategist for more than 10 years. Invested Central provides stock market education and guidance for those interested in making their own financial decisions. During his tenure at Invested Central, Tom co-hosted Market Open LIVE, a national radio broadcast that covered many of the largest markets across the U.S. In addition, he has spoken at various conferences throughout the United States and Canada and has taught thousands of traders across the globe how to trade equities more wisely with an emphasis on managing risk and intermarket relationships. Learn More
Subscribe to ChartWatchers to be notified whenever a new post is added to this blog!
comments powered by Disqus