XLY Consumer Discretionary Weekly Chart; Overbot; Rising Wedge; Negative Divergence; Price Extended

The XLY is the consumer discretionary ETF that is topping out on the weekly basis. The red rising wedge is ominous since the collapses from these patterns can be quite dramatic. The stochastics and RSI are overbot or coming off overbot levels. The red lines show negative divergence across all chart indicators as price makes the matching or higher highs 3 of the last 4 weeks. A neggie d smackdown is on the come.

Price tagged the upper standard deviation band, and came back for a middle band touch, but then rallied again to the current highs a whisker away from the top band again. This has to be respected for the days ahead so 160.55 may occur, but if it does that would be even a better level to put on shorts. Price is extended above its moving average ribbon so a mean reversion lower is needed. All the above parameters are bearish.

The Aroon green line is at maximum overbot levels and the red line is at maximum oversold levels both indicating that the party is in full swing with maximum euphoric bullishness occurring. The Aroon lines will converge creating a negative cross (red circle in margin) which will verify the ongoing selloff on a weekly basis.

During the February-March crash early this year, the ADX was on the verge of showing that the downside was a strong trend (above 30) but it did not. Instead, the Fed ran to the rescue as usual, printing money like madmen to protect the wealthy class that own the US stock market. The crony capitalism takes on additional life with Congress approving fiscal stimulus (which is currently ending) and the double-whammy of easy money sends equities to historic new highs. The ADX number does not move above 30 during this long upside orgy in the consumer discretionary stocks as well as the broad stock market from March. This tells you that the epic record-setting rally off the March low is phony-baloney from a fundamental standpoint. The economy and stock market is only goosed by the easy money these last few months. The stock market patient is kept alive on the Fed's heroin.

XLY should roll over on the weekly basis starting anytime. Perhaps the shorter-duration charts can pinpoint when. Looking at the XLY daily chart, it is displaying neggie d and agreeable to a pullback on the daily basis going forward. The XLY 2-hour chart shows the nice top that was an easy call with neggie d last Friday morning. Futures are up this morning, and price was recovering so watch the 2-hour to see if the 160+ number prints. Anything above 158.50 is bueno to short from. Keystone's 80/20 Rule says 8's lead to 2's so a sustainable breach above 158 will likely lead to 162. A short can be scaled into with one-third of the position now, then in a few days another third, then in a few days after that the final third.

Since XLY is setting up for a multi-week pullback that means the components must be as well, right? Well, let's take a quick look at the weekly charts. AMZN has been staggering sideways since July. The standard deviation bands are coming in tighter so Amazon may in for a very sharp move. The MACD line remains weak and bleak. HD is same as Scamazon with bands coming in tight and indicators sloping lower. Same-o for LOW. Ditto MCD. SBUX is similar but the MACD line is long and strong so it will remain elevated another couple weeks. 

NKE is topping out like the XLY chart above. You can short NKE now. If you made a bunch on Nike over the last few months or years, git while the gittin' is good. She's topping out on the weekly and NKE will likely fall from the current 135 to the 110-130 area over the next couple weeks or month. TGT is setting up for a short but not yet. Target shows a long and strong MACD line on the weekly so it will not top out for a couple more weeks so put it on your short list for then.

XLY and NKE can be shorted right now and going forward. If prices continue floating higher, simply add to the shorts. Of course use physical or mental stops depending on your risk tolerance but these puppies are about to begin a multi-week down move. Lump the AMZN, HD, LOW and MCD in the same camp where they are expected to roll over lower with the broad market as the selling begins. Put SBUX and TGT on your short list for 2 weeks from now. The plays from the above are XLY and NKE on the short side now and cash out of them if you made a lot of dough on the long side. In 2 weeks, look to short SBUX and TGT depending on how the charts set up. Keystone does not own XLY or NKE short right now but will look for entries today and going forward on the short side as well as trading in and out as usual.

On the XLY monthly chart, the MACD remains long and strong so after the multi-week pullback, XLY may launch another rally to bring price back up to current highs one or two months out. At that time, the long-term multi-month and multi-year top is in for XLY. In other words, XLY is topping out now over the next couple months, on a long-term basis. As the selling on the weekly basis begins, volatility will spike higher which will lead to huge up and down days, and intraday, in stocks and indexes. One potential path is for XLY to nosedive to 135 in quick order (over the next few weeks), then a spike recovery higher to 155-ish, say in late December or early January, then it completely dies. The charts will light the way. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 10:45 AM EST: XLY moves +0.2% higher to 157.64. HOD 158.58. The rest of the market is outperforming in a big way. The smart money is exiting stage right. How many gold rings, diamond bracelets and fur coats does girlie need? How many electronic gadgets, tools and vacations does sonny need? AMZN is down -0.2% which explains the sogginess in XLY.