11/04/2018 – back on June 09, 2018 we saw this – almost – perfect pattern hit support. it’s the ratio of XLP / S&P 500 – we use ratio analysis to look for ‘risk on’ or ‘risk off’ mindset from the big dudes. in times of ‘risk on’ the ratio will go down as the big dudes / dudettes are not in defensive names (like staples) and when the ‘risk off’ mindset is present then the ratio will go up. i.e. the XLP is ‘outperforming’ from a relative strength perspective. the ratio completed a harmonic BUY pattern back in June and it took another 4 months before the market topped. one could conceivably say the rotation occurred in the summer. I’m posting the updated chart below … try and follow the bouncing ball of CONFIRMING indicators that the ratio was bottoming ….
where are we now? as you can see on the daily below we were DEFINITELY being warned w/ another near perfect BUY pattern on the ratio 10/04/2018. it exploded higher … I see a little more consolidation/ corrective form in the ratio an then another move higher to complete an inner 5 wave sequence. that’s when the ‘real’ pattern emerges. I DO NOT KNOW, yet, if this is an Elliott A-B-C corrective move (bullish for stocks) or a 1,2,3,4,5 wave sequence that foreshadows the ratio going higher (bearish for stocks) … were just going to have to chill and wait to see what unfolds.
here’s the ratio ‘dates’ on top of the S&P 500 cash. again, somewhat in no mans land as we wait for the next BUY or SELL pattern to emerge. But, in the end, believe the ratio gave us ample time to position our portfolios accordingly – either the bear or bull you are. I’m neither … just a pattern recognition dude using some crayons to draw cool pictures and patterns.
there is a different look/feel to the XLP / SPX versus the XLP / NYA. If you look at the chart below, you’ll see we did a pretty tight consolidation from 2011-2016 in the XLP / SPX. It’s a ‘perfect’ sell pattern at “C” that complete and then the ratio fell out of the sky.
i’m curious at the lack of follow thru w/ regards to the S&P 500 (not making new highs like Russell, NASDAQ, etc) so I decided to take a look at this ratio instead of NYSE as the denominator.
as you can see we have some key observations:
- take the time to study ‘past’ retracements as ‘sometimes’ the same ratio/vibration (remember that’s all it is – vibration) is present. In this case we have the .707 retracement level present at the high and now here at the lows
- Square Root of 2= 1.4142
- 1/1.4142 = .707
- the harmonic 1.27 is present in that 1.27*AB = CD
- square root = 1.27
- note the blue measured move arrow from the XLP inception in 1998 is present in this correction
- the MONTHLY RSI is at the lowest level since the inception of the XLP and this ratio of XLP/SPX
- THE TIME OF THE CORRECTIVE MOVES OF THE RATIO ARE EQUAL
what am i trying to get at? nothing more than I’m very cautious of any further up move in the markets (for now) .. .historically, when the XLP starts to perform it signals a ‘risk off mindset’ of the big institutions and volatility starts to rise …
while I DO NOT think the bull market is over by any stretch, I do think that another move lower is in tune (note the music reference :)) w/ the form, balance and proportion we are used to seeing from a corrective nature.