CLIFF NOTES: sector rotation is a fact of life …we’ve shown how the institutions follow a well defined script and how, usually, energy is the last shoe to drop before the inevitable correction (it’s different this time) occurs. ratio’s are important because they show relative strength of something versus something. In this case, we have the XLP (consumer staples) over the broader S&P 500. The thesis – in times of volatility/risk off – there is a move to consumer staples and the consumer staples become stronger …the NUMERATOR (XLP) is stronger than the denominator (S&P 500).
CLIFF NOTES 2: the line below is the S&P 500 and at EVERY top since 2000 (labeled w/ a blue rectangle and the word “top”) the ratio bottomed. What’s interesting is the new highs in the S&P 500 were not confirmed by lower lows in the ratio. That’s something to monitor and watch….note, we do have a MONTHLY signal reversal candle present so, monitor this ratio closely ….