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How to play 2015's best sector in the new year

As stocks finished off 2015 in the red, traders say this year's best performing sector should continue to be a source of solid returns for investors.

Consumer discretionary stocks rose more than 8 percent in 2015, led by high fliers such as Netflix, Amazon and Starbucks. Amazon and Netflix were the only two stocks in the S&P 500 to double in stock price this year.

Looking at the charts, technician Craig Johnson of Piper Jaffray said the long-term uptrend in the consumer discretionary sector ETF (XLY) remains intact, and he expects the run to continue in 2016. Specifically, Johnson recommends focusing on large-cap stocks, which have outperformed their industry peers with smaller market capitalization.


"As you dig inside of this ETF, it's really been a divide between the small caps, the mid caps and the large caps throughout the year. From my perspective, it's still about the large-cap consumer space," Johnson said Thursday on CNBC's "Power Lunch."

Read MoreDon't expect a Netflix, Amazon repeat in 2016

For specific industry groups, Johnson said hardline retail, video games, auto parts and athletic wear look particularly strong going into 2016.

"I think there are a lot of really good consumer plays," Eddy Elfenbein of the Crossing Wall Street blog said Thursday, namely Bed Bath & Beyond and Ross Stores.

However, Elfenbein warned that investors should consider how the Federal Reserve potentially raising the federal funds rate in 2016 may affect specific consumer stocks.

"What we're going to see going forward as the Fed hikes interest rates, we'll see a growing divergence between the consumer stocks that are finance and more of the consumer staples will continue to rally on," Elfenbein said Thursday on "Power Lunch."

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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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