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As the market was selling off earlier this morning, we bought back our position in XLY. While we have been riding out our “MEGA” squeeze call for some time now in Consumer Discretionary (Mortgages Rates, Employment, Gas, and Assets), that doesn’t mean we need to own it at tops (we sold ours on 1/2/09).

The chart below outlines our the two quant levels that matter here: 1. The “Shark” line (the line where the shorts get eaten if closing above) at $21.22 and 2. The Breakout line (the line where the momentum community will chase it higher) at $22.41.

When Howard Penney and I break down our US “Sector” level risk management levels for our top tier macro clients, the XLY continues to shine as the group to be long for market up moves – the XLF (Financials) remains the weakest.

Keith R. McCullough
CEO & Chief Investment Officer