The market finds itself off to a running start this week, thanks to a pull back in oil prices. This timely news gave investors a reason to buy back into stocks, consequently running the Dow up 130 points; closing at 12,876. The NASDAQ finished the session up 42 points, closing at 2488, and the S&P 500 nailed down a 15 point gain, closing at 1403. This rally was broad based, as 9 out of the 10 market sectors finished the session in positive territory today.

One of the most bullish advances in the broader market today came via a surge in Consumer Discretionaries. Retail companies, led by Wal-Mart (WMT), posted gains on the day based on positive retail sales rumors that surfaced this morning. This news gave the market some reassurance that the consumer is still spending money, despite inflation and credit woes.

Lately I have been keeping a very close eye on these consumer discretionary companies, and been following the price action in the XLY. If you find yourself scratching your head wondering “what consumer discretionaries are,” these are stocks that tend to be the most sensitive to economic cycles and are companies that deal products and services directly to the consumer. These companies focus on services that are “above and beyond” what the consumer absolutely needs. In short they are companies that deal with “wants” rather than “needs.” Some of the companies included in this fund are HD, DIS, CMCSA, NKE, etc.

If you do not have this stock on your radar, set your sights accordingly. The XLY has been a critical measurement in my market posture going back a few months. As prices move higher, this deflates worries about the consumer and their impact on the future of our economy. If we can see a continued trend in consumer spending, all other problems will seem relatively small in comparison.

Figure 1: XLY finding support off a bullish triangle pattern.

In global news, a devastating earthquake shook Sichuan China today. The quake that measured a 7.9 has already claimed the lives of nearly 9,000 people, and caused major damages in southwest China. This comes at a bad time for China as the 2008 summer Olympics are set to start in Beijing in August of this year.