Friday, May 2, 2008

Limited Upside for Consumer Discretionary Sector?

As Corey at Afraid to Trade pointed out in Some Surprising Trend Day Action, one of the more interesting sub-plots in yesterday’s breakout was the strength in the consumer discretionary sector, which rallied 5.8%.

I am firmly of the opinion that the current stock market rally cannot be sustained unless consumer confidence, consumer purchasing power and consumer activity all rally in concert with the markets.

My concern with the consumer discretionary sector extends to a chart of the sector ETF, XLY. In the weekly chart below, the current level of the XLY (33.55 as I type this) is now back to the 32-34 area bounded by the symmetrical triangle formation of 2005-2006 and is also rapidly approaching the 34.08 50% Fibonacci retracement level. Both of these indicators suggest that the XLY should find considerable resistance in the 34-35 area; if this is the case, the market will have to rely on other sectors to continue the current bull rally.

3 comments:

Anonymous said...

Hello bill,

very nice job like usual...

Do you know if they is any Hedge Fund how use only VIX options as strategies, not only long Vol but pure options strategies ?

Punky trader ...

Bill Luby said...

Hi Punky,

If you are asking whether hedge funds are using VIX options for directional strategies rather than just volatility plays, I can't say that I have specific knowledge about hedge fund activities. Despite that disclaimer, I'm fairly certain some hedge funds use VIX options in the manner you are wondering about -- on an experimental basis at the very least.

Cheers,

-Bill

Anonymous said...

ok ... no i am working for a fund of fund and we are looking for hedge fund who trade only vix Index options ot futures .. any way I will find ,,,

today I was looking at the spread sp500 FDTR .... it was a realy quick move from the FED compare to the other ... are we realy changing our mind in term of trading ? can a bear market be so quick ?

punky

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