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This sector could lead the market higher: Technician

Volatile market swings has some investors looking for a place to hide out. But for one technician, the obvious choice could be in what's been working all year.

"Consumer discretionary as a whole is probably one of our favorite [sectors] to buy on this market pullback," Ari Wald said Monday on CNBC's "Trading Nation." The consumer discretionary sector is the best performing in the S&P 500 on a year-to-date basis up 4 percent. And according to Wald, "the tip-off is in the relative trend."

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Looking at the XLY, the ETF that tracks the space, Wald compared it to the broader S&P 500. "Through this market setback the XLY has indeed dipped back to some important support levels, but its relative trend has continued to move higher," said Oppenheimer's head of technical analysis. "That's indicating to us that investors have been less eager to sell this sector."

Wald believes that the consumer discretionary space will likely lead the market higher once the current correction concludes, noting, "this is the area [investors] want to be buying."

Consumer discretionary stocks have been outperforming the broader market for the past year. The sector is up 9 percent in 52 weeks while the S&P 500 is down more than 1 percent in the same period.

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"This makes a lot of sense to me," Boris Schlossberg said Monday. "Consumer discretionary [stocks] are most correlated to jobs and as long as we continue to manufacture jobs—even if it's at a slow and steady pace—it simply adds to that consumer buying power."

Of all the companies in the sector, Wald sees the most opportunity in Starbucks, calling the company a "triple threat," meaning "it's fundamentally rated outperform at the firm, it screens positively based on trends and earnings revisions and the technical trends are very strong." Shares of Starbucks are up 33 percent in the past year.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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