Since 1932, Black Friday has been regarded as the beginning of the Christmas shopping season in the U.S. Most major retailers open early offering promotional sales to boost their sales for the 4th quarter.
The retail sector SPDR reflects glowing optimism, as the past three weeks have been bought heavily by institutions. For much of 2015 – 2016 the sector has been trending lower on a bleak outlook for the year. The recent change in optimism is reflected in XRT.
The XLP XLY ratio also mirrors this optimism. This ratio currently reflects improving consumer sentiment, as consumers buy goods and services that are considered non-essential, but desirable if their available income is sufficient to purchase them.
The discretionary sector includes retail, auto, housing, durable goods, apparel, entertainment and leisure. As this indicator continues to drop, you should assume a bullish bias in your trading decisions.
With the indices clearing volume by price (VBP) resistance, we monitor signs for a possible pivot high. This will occur only when price drops below the 9/20 exponential moving averages. This action would then need to force the two averages to rollover. Until then, we are bullish.
As SPY moves higher, there is no overhead supply to sell into this strength, therefore until the short time frames reflect a change in character, we will watch the 60 minute chart for direction.
SPY daily is trending, so we revert to trend following strategies, until this ascending trend is broken. Anticipate back and fill as we move higher. Add or start new positions only when prices flag or pullback to the rising 9/20ema. Trail your stops.
RSI and STO can embed in overbought zones for much longer periods than bears can stomach. That said, we are closer to a pivot high and should anticipate this possibility by trailing our stops on this time frame as well.
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