Shallow Correction & The Consumer Sector XLY, 07/05/11 © ™

The investor action synopsis is at the end of this update instead of the beginning.  There is no change.

The weekend update said:

“It would not be unusual to consolidate for a short period after today and that is especially true since the DJ Industrials are entering an area of congestion.”

The market began correcting today after a fast run up last week.  So far the correction has been very shallow and that’s good.  If a shallow correction continues it would mean investors are continuing to buy during this “catching your breath” period.

A follow through to the upside could begin before the close on Wednesday, but at the latest a surge should begin next Monday. Without a follow through to new highs would have bearish implications.

One sector of the stock market that I would like to draw your attention is the discretionary spending of the consumer.  This is represented by the ETF XLY, which consists of companies where the consumer spends his/her money.  Components of the ETF XLY are at the end of this update.  Since over 70% of our GDP is consumer related, the outlook for this group is important to our economy.  Judging by the performance of this sector, a lot of investors think the consumer is going to be spending in the future.

The first chart is a 20 minute bar chart of XLY, which shows how it has soared since it bottomed on June 16.

07-05-11, XLY 20 MIN BARS, SINCE 06-10-11, TREND LINE

The second chart is the daily bar chart of XLY.  It is staying within the trend lines that I have drawn dating back to the correction in July 2010.  It made a new all time high on Thursday July 2 (bullish).  While it was making a new high, the rest of the market hadn’t bettered its May 2nd peak.

The wave count of XLY is very bullish and could portend extensive gains for the market.  We’ll have to see how that turns out but it makes you wonder if this index is leading the market???  We’ll find out later.


Discretionary consumer spending represented by XLY could be foreshadowing a revival of the economy during the 3rd quarter of this year. Naturally we will have to wait and see if that’s true but this sector can lead the general market.  The third chart is a weekly bar chart of XLY since July 2006.  XLY peaked the first time in February 2007 and then made a couple of slightly higher highs during the period June 1 to July 7, 2007.  When the general market peaked in October 2007 XLY was well below its July high.  And we all remember what happened after October 2007, don’t we???



  • Very Long TermSince Jan 2000
  •  Step 2 Of 3 Down Completed, Rally Phase Underway
  • Follow Long Term Strategy
  • Long TermSince Mar 2009
  • Step 2 Of 3 Up Is Ending – Ending Process Is Unconfirmed
  • Hold – Investors Continue To Hold
  • Intermediate TermSince Feb 2011
  • Correction Completed Since May 2 – Confirmed
  • Step 1 Of 3 Down Completed – 2 Additional Steps Are Unconfirmed
  • Buy Completed – Short Term Speculator Purchase
  • Short Term Since June 15, 2011
  • Correction Completed On June 15
  • Small Step 2 Up Is Underway
  • Buy Completed – Short Term Speculator Purchase
  • See Odds ‘N Ends under the category Huh??? on the sidebar.  For an explanation of methodology, see the category Indicators.

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Components of XLY are as follows:

Mcdonalds Corp MCD
Disney Walt Co DIS
Home Depot Inc HD
Comcast Corp New CMCSA
Amazon Com Inc AMZN
Target Corp TGT
Ford Mtr Co Del F
Lowes Cos Inc LOW
Directv DTV
Time Warner Inc TWX
News Corp NWSA
Nike Inc NKE
Viacom Inc New VIA.B
Time Warner Cable Inc TWC
Starbucks Corp SBUX
Tjx Cos Inc New TJX
Yum Brands Inc YUM
Johnson Ctls Inc JCI
Kohls Corp KSS
Staples Inc SPLS
Carnival Corp CCL
Best Buy Inc BBY
Coach Inc COH
Bed Bath & Beyond Inc BBBY
Omnicom Group Inc OMC
Discovery Communicatns New DISCA
Gap Inc Del GPS
Cbs Corp New CBS
Macys Inc M
Stanley Black & Decker Inc SWK
Mcgraw Hill Cos Inc MHP
Starwood Hotels&Resorts Wrl HOT
Marriott Intl Inc New MAR
Priceline Com Inc PCLN
Mattel Inc MAT
Whirlpool Corp WHR
Fortune Brands Inc FO
Sherwin Williams Co SHW
O Reilly Automotive Inc ORLY
Harley Davidson Inc HOG
Limited Brands Inc LTD
V F Corp VFC
Apollo Group Inc APOL
Nordstrom Inc JWN
Ross Stores Inc ROST
Genuine Parts Co GPC
Penney J C Inc JCP
Darden Restaurants Inc DRI
Autozone Inc AZO
International Game Technolo IGT
Family Dlr Stores Inc FDO
Tiffany & Co New TIF
Wynn Resorts Ltd WYNN
Block H & R Inc HRB
Hasbro Inc HAS
Polo Ralph Lauren Corp RL
Newell Rubbermaid Inc NWL
Urban Outfitters Inc URBN
Expedia Inc Del EXPE
Sears Hldgs Corp SHLD
Wyndham Worldwide Corp WYN
Scripps Networks Interact I SNI
Interpublic Group Cos Inc IPG
Devry Inc Del DV
Gannett Inc GCI
Leggett & Platt Inc LEG
Gamestop Corp New GME
Pulte Group Inc PHM
D R Horton Inc DHI
Abercrombie & Fitch Co ANF
Big Lots Inc BIG
Goodyear Tire & Rubr Co GT
Washington Post Co WPO
Lennar Corp LEN
Radioshack Corp RSH
Harman Intl Inds Inc HAR
Autonation Inc AN
Eastman Kodak Co EK
Office Depot Inc ODP
Meredith Corp MDP
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