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Discretionary Stocks Join the Party

David Becker
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Discretionary Stocks Join the Party

The Consumer Discretionary SPDR (XLY) was hit with selling pressure in late July, but firmed in early August, and surged back above its short-term support break. Consumer discretionary has been the lagers of the market, along with financials. If discretionary stocks can join the party, the S&P 500 index can catapult and there is a strong likelihood of a new all-time high.

The long-term uptrend on the XLY was never in jeopardy because the ETF held above its rising 200-day moving average. The bounce off support and last week’s breakout ended the short-term pullback, which was a correction within a bigger uptrend. The XLY had broken support turned into resistance and this area again turns into the first support area to watch. XLY appears headed for a new high and this is positive for the market because the consumer discretionary sector is the most economically sensitive sector.

Disney (NYSE:DIS) , the largest component in XLY, and this stock broke out last week hitting a new high. Home Depot (NYSE:HD) , the fourth largest component, also broke out and hit new highs. The run up in HD is especially interesting because the housing group is generally weak, the retail group cannot hold a bid.

Home Depot reported Tuesday that sales and net income rose for the second quarter, beating analysts’ estimates. The home improvement retailer also raised its earnings guidance for the year. Home Depot said it earned $2.1 billion in the second quarter, or $1.52 a share. That compares to $1.8 billion or $1.24 a share, in the same period a year ago. Revenue rose 5.7% to $23.81 billion, up from $22.52 billion a year ago. Analysts were expecting earnings of $1.45 a share and revenue of $23.6 billion. HD shares rose more than 3% in pre-market trading to $86.10.

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