revisiting the XLP/SPX ratio … AGAIN

folks, bringing this up, again, because this divergence is MONSTROUS.

in order to show the divergence and how something is “not quite right in toon town” I’ve actually inverted the ratio to show the S&P 500 on top this time.  t

the only reason is it shows the amazing divergence present .. when you look at the chart below notice the perfect synchronicity between the S&P500 and the S&P500/XLP.  but notice around 2011, the dance breaks up … that’s a big deal to me and while it’s true you obviously can’t fight the fed and it’s different this time what I believe it tells us is the “smart money” has stayed in staples or haven’t jumped into this amazing bull market as much as anyone thinks.

notice the divergence!
notice the divergence!

now, here’s the same ratio but this time we have the STAPLES has the numerator … note, when this ratio BOTTOMS the S&P 500 TOPS and when this ratio TOPS the S&P 500 bottoms.  EXACTLY … the theory is the institutions move in/out of “defensive” names during times of volatility so we expect the relative strength of the XLP’s to increase during bear markets / sell-offs (the ratio goes up) and decrease during bull markets/rallies (the ratio goes down)

the ratio HAS NOT GONE DOWN during the past 2 year rally phase … tells me the institutions have kept their powder dry.

XLP / SPX - note divergence and NO NEW LOWS on the ration ....
XLP / SPX – note divergence and NO NEW LOWS on the ration ….

just a matter of TIME …

Author: BART

BART is a CMT and an expert a "advanced" pattern recognition used w/in the intermarket analysis discipline. He's also an accomplished Business Development Executive providing solutions to a myriad of business markets.

Leave a Reply

%d bloggers like this: