This Sector is Under Pressure

The iShares Consumer Discretionary ETF (IYC) has been under pressure since November 2021. IYC is currently down over 26% from its 2021 highs.

Of course, the consumer discretionary sector isn’t alone when it comes to rough performance over the last 18 months.

But unlike some other sectors that have outperformed, like semiconductors, consumer discretionary stocks still look like they’re in for more pain.

Let me walk you through a daily timeframe chart of IYC so I can show you the bearish setup that’s currently in the works.

There are two key features to this price chart.

1. IYC is currently trading within the boundary lines of a larger triangle pattern (the blue lines on the chart). Triangles are trend continuation setups.

   As we can see on the chart, IYC has been in a downtrend since late 2021. This means that after this triangle breaks out, IYC will likely resume its downward slide.

2. We have a cluster of important moving averages (MA) all trading tightly together. The MAs on the chart include the 20, 50, and 200-day.

   Whenever you have a cluster of MAs all trading sideways, it’s time to pay attention. This is usually when traders ignore a market because they think sideways action is boring.

   But that’s a mistake because it just means the market is building pressure and getting ready for its next big move.

   If IYC were to break below all three MAs, it would support the larger triangle pattern and increase the odds of a breakdown.

There are a couple of ways to trade this pattern if the market starts breaking lower.

An aggressive trader could look to establish a position if the support offered by the three MAs were to fail. This would eventually lead to the MAs sloping downwards instead of going sideways.

On the other hand, a more conservative approach would mean waiting for the market to break out below the support line of the triangle pattern.

Neither approach is necessarily better or worse than the other. It ultimately comes down to your individual risk tolerance and trading style.

More aggressive traders do tend to stack up larger gains, but they’ll also often take on more losses as well.

Conservative traders will likely see smaller average gains but will enjoy a higher win rate.

That’s why when it comes to trading, it’s important to truly know yourself and know what will work for you.

Happy trading,

Imre Gams

Are you an aggressive trader, or a conservative trader?

Let us know your thoughts – and any questions you have – at [email protected].