Q4: Do Or Die Time For Consumer Discretionary ETFs?

Welcome to the fourth quarter and the start of the holiday shopping season. To say the least, this is a critical time of year for consumer discretionary ETFs, namely the Consumer Discretionary Select Sector SPDR XLY and the Vanguard Consumer Discretionary ETF VCR. Give these two ETFs some credit. In the face of fears of a double-dip recession and declining consumer sentiment (September's number was worse than the August reading and neither was anything to crow about), VCR is up 16% in the past three months and XLY is up 14%. However, unlike so many other ETFs, neither VCR nor XLY have traversed their April highs. Alright, so VCR and XLY have impressed in the face of some headwinds, but can they continue to surge at the most important time of year for retailers like Best Buy BBY, Coach COH and Tiffany TIF? All are XLY constituents by the way. It's going to be about more than brick-and-mortar retailers because Amazon AMZN is a top-10 holding in both ETFs and that stock has been on a parabolic rise over the past month. The stars may be aligning for a stellar fourth quarter for consumer discretionary ETFs as the Commerce Department reported surprise jumps in consumer spending and personal income in August. The International Council of Shopping Centers is expecting holiday sales to jump 3%-3.5%, the biggest pop since 2006 and Best Buy has indicated it will ramp seasonal hiring to meet the holiday rush. Those are encouraging signs, but this much is clear: VCR and XLY may have been benefiting from some positive market sentiment over the past month. Now is the time for the U.S. consumer to go to work to really lift these ETFs. If that doesn't happen, there could be a lot of coal in the stockings of VCR and XLY by the time Christmas rolls around. Make XLY your trade as it is far more liquid than VCR. A move above $36 would be huge for XLY.