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Equity indexes started the week with a bang as bullish sentiment swept over Wall Street thanks to news of European leaders making progress in the right direction, along with a stellar start to the holiday shopping season at home. The Nasdaq led the way higher, gaining 3.52% on the day, while the Dow Jones Industrial average lagged behind, clinching a 2.59% gain. Domestic equities charged higher as U.S. retailers gained big time over the weekend, with research showing that the average shopper spent $398.62, up from last year’s figure of $365.34. Gold climbed higher alongside stocks and futures prices for the precious metal reclaimed the $1,700 level, settling near $1,714 an ounce as the trading session drew to a close.

Investors will keep their eyes on the U.S. consumer confidence report when it hits the street later today, which places the spotlight on the State Street Consumer Discretionary Select Sectors SPDR (NYSEARCA:XLY) for the day. The consumer confidence report may lead to increased trading volumes for XLY as investors scramble to adjust their positions based on the latest data which provides insights as to how the domestic consumer discretionary sector may be expected to perform going forward. Analysts are expecting for the figure to come in at 45, versus the previous reading of 39.8.

Chart Analysis

Since topping out at $41.78 a share on 7/7/2011, this ETF has endured a quick and brutal correction, sinking near the $34 level. Investors should note that XLY has considerable support near $34 a share seeing as how it has held support above this level three times since dipping below its 200-day moving average (yellow line), on 8/9/2011, 8/19/2011, and once again on 10/4/2011, during which it briefly slipped as low as $33.07 a share. XLY has staged an impressive rebound since bottoming out in early October, although establishing a long position at current levels is still quite speculative seeing as how this ETF is still trading below its 200-day moving average.

click to enlarge

Investors should note that XLY has failed to close above the $40 level over the past month, showcasing the considerable resistance at this price level [see XLY Holdings].

Outlook

If consumer confidence comes in better-than-expected, bullish sentiment surrounding the U.S. economic recovery may once again sweep over equity markets, potentially paving the way higher for XLY. In terms of upside, XLY may jump to $39 a share, at which point we would advise short-term traders to lock-in profits given the significant resistance level near the $40 mark. Likewise, if investors are disappointed as the report paints a gloomy outlook for consumer spending, this ETF may slip down to $36 a share, while major support lies all the way down near the $34 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

Disclosure: No positions at time of writing.

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Source: U.S. Consumer Confidence Report Brings Consumer Discretionary SPDR ETF Into Focus