Simple moving averages
The simple moving average is one of the most simple and common technical tools for investors to discover trends in underlying security. This indicator favors the consumer discretionary sector, as most of the sector’s ETFs are trading above their short- and long-term moving averages, as can be seen from the below chart.
The consumer discretionary sector is showing a strong rising trend after some good macroeconomic news and positive earnings from stocks like L Brands (LB), TJX Companies (TJX), Dollar Tree (DLTR), and Target Corporation (TGT).
The 14-day RSI (relative strength index), which has a range of 0–100, is used to indicate the strength of a trend’s momentum. An RSI reading of 70 or above indicates a security is overbought, which is a sign of strong momentum, while a level below 30 indicates a security is oversold. The consumer discretionary sector has been moving toward the 70 mark, as can be seen from the above chart. It can be expected to cross the mark over the next month.
The VanEck Vectors Retail ETF (RTH) is at its highest level in terms of 14-day RSI, which had reached a level of 34.2 on November 13, 2015, due to some disappointing earnings releases by companies like Macy’s (M) and Nordstrom (JWN). This created pessimism in the market regarding the outlook of the sector, but as earnings improved throughout the month, the ETF rose, too. Other consumer discretionary ETFs like XLY, XRT, and VCR saw a similar trend over the month.\