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The Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY) is up over 10% year to date. There has been some media sentiment that a pullback in the SPDR S&P 500 ETF (NYSEARCA:SPY) could mean the XLY could pullback, since the two tend to trend together. If investors have been in the XLY since $38 (a level of resistance) investors have been nicely rewarded. With the XLY in a continued upward bullish channel, investors might be asking themselves is their more room for upside? In this bullish market, one strategy that has been working for me, is sticking with the winners and dumping the losers. If investors are bullish on the economy and believe in a consumer that has more discretionary income, then I believe that the trend will continue higher in the XLY.

Chart forConsumer Discret Select Sector SPDR

The XLY comprises investments in automobiles, technology, restaurant and retail stocks. The top ten biggest holdings in the XLY are McDonalds (NYSE:MCD), Comcast (NASDAQ:CMCSA), Disney (NYSE:DIS), Home Depot (NYSE:HD), Amazon (NASDAQ:AMZN), Ford (NYSE:F), News Corp (NASDAQ:NWSA), Nike (NYSE:NKE), Target (NYSE:TGT) and Time Warner (NYSE:TWX). Out of the top ten holdings only two are down a small percentage year to date. McDonalds (down 2.59%) and Time Warner (down 0.55%). When looking back at last quarter's earnings of XLY's top ten holdings only Ford reported negative earnings and the other nine companies met or reported a positive surprise on their earnings.

If investors believe upcoming earnings can help further propel the XLY higher then I would go against media sentiment calling for a correction. I also would be a buyer on pullbacks in the XLY for a number of reasons:

1) Two economic indicators to pay close attention to are the employment reports and consumer confidence. A continued improvement in these numbers can support bullish sentiment in the XLY.

2) Technically the XLY is still trending in an upward bullish channel and the stock hasn't broken the upper Bollinger band.

3) In the ten biggest holdings of the XLY, Nike is reporting earnings on March 22, 2012. If earnings continue to grow and a number of companies in the XLY can deliver positive earnings surprises, then this can help maintain the upward bullish momentum.

4) I am still bullish on stocks in the consumer discretionary sector, but would rather take the safe route of diversification and have a lower volatility rather than play individual stocks in the XLY.

There are a number of names in the XLY that are up over 15% year to date and rather than wait for a pullback in an individual name, it could be cheaper to play the XLY since this can mean lower volatility and beta. When looking at a chart of the XLY, investors will notice the XLY had two bounces off the middle bollinger band. Until the XLY breaks the lower bollinger band and heads lower, I believe the upside can continue for the XLY.

Chart forConsumer Discret Select Sector SPDR

Even though when a stock or an ETF can have mean reversion back to their moving averages, these pullbacks provide great opportunities for investors. If investors believe that the XLY won't continue to ride the trend higher, then waiting for a pullback can help you save some money. The XLY also has options to help leverage yourself. I believe there are more bullets left in the XLY and I would consider buying the June in the money calls on pullbacks. If investors don't want to use options and would rather buy shares, the XLY pays out an annual dividend of 0.61 per share or 1.39% annual yield. Weather an investor wants to use stock or options the XLY has been a constant performer since the start of the year. Thank you for reading and good luck.

Source: Riding The Trend Higher In The Consumer Discretionary Select Sector SPDR Fund