…. ratio has exploded but appears we are running into stiff resistance
if you want to take a peak at what we’ve been doing w/ the XLP / NYSE Index (Staples/overall market) then search for XLP on the site at the top right of the home page …we very clearly saw the ratio bottom and start back up (which means, on a relative strength basis that staples were starting to outperform (negative for equities)) back in late December and January. what is fascinating to me is the STRENGTH and VOLUME of the candles of late. frankly,they are blowing away the candles from the 2007-2009. it sure looks like, from the ‘big boy lens’ (hedge funds, relative value funds, institutions, etc.) that they are moving into the safer names (staples) in a BIG WAY. I trust this ratio because, as you can see, it’s been responsible for guiding the MAJOR tops and bottoms since the XLP ETF was created back in 2000.
per the chart below, we are in uncharted waters … however, note the blue rectangle areas. if we take these areas and then look at the NYSE Index that I just blogged about earlier THEN we could very well see a sustainable bounce (note I did not say end of the dumping) but a bounce … so, pay attention to the level on the NYSE Index and also the blue rectangles below …
06/09/2019 – back to our old favorite. you know I’ve been watching this one for a while. I was hawking a low in the ratio in mid-2018 but missed it from a time perspective … then, in retrospect, easily saw the measured move and the .786 retrace. I’m human, I missed it. should have been more diligent – especially w/ the time cycles coming in from the 2007 low. the TIME had worked as support before so why not now …? Oh well.
now, we can pretty nicely see 5 waves up and we are in the 5th wave up .. could be a 1 or an A. only TIME will tell. I feel reasonably certain that after a pullback on the ratio (less volatility, higher stocks) there will be another 5 wave move higher if this analysis is correct.
I’ve also included an overlay of the NYSE Index and the XLP/NYA ratio to show the thesis that – by using patterns to ratio analysis we can find potential inflection points. in this case – staples (XLP) represent a risk off mindset (volatility/selling) when they outperform the overall market (the ratio goes up). when the overall market (NYSE Index) outperforms (the ratio goes down) then risk is on and the market volatility should go down and prices go up. Seems to work …
so, 5 waves up from the bottom, 3 wave pullback and 5 waves up … that’s what were looking for, right now. TIME will tell.
did this for Andy and the gang @seeitmarket: https://www.seeitmarket.com/are-consumer-staples-signaling-a-volatility-omen-17331/
here’s an update as of Friday’s close:
If I learned anything from getting my CMT it was the power of ration analysis. X/Y …. If X is stronger the chart goes up and if Y is stronger then the chart goes down. And, since we are charting securities guess what works on them –the PATTERNS. So the theory goes IF the insititutions are risk off the chart goes down and volatility is suppressed. If the institutions are risk adverse then the chart goes up and volatility picks up and stocks sell off.
MONTHLY of XLP / NYSE Index w/ candles being the ratio and the blue line being the NYSE Index.
Note, at EVERY major inflection of the NYSE Index the RATIO pivoted … it either inflected to go up or down BUT every move of the NYSE Index respected this move.
Monthly XLP / NYSE Index.
Note, most oversold in 6 years and slammed into the .382. Weekly bearish close … did expect it to respect this area and w/ Bradley Date, Martin Armstrong Directional Change and the note from Mike – along, and most importantly, the PATTERNS I did expect this to find support and give at least a daily BUY signal. It has not done that …but all is not lost.
Monthly XLP/ NYSE Index
Note, if we don’t find support here then we have a measured move target a little lower and, ultimately the big green target …
Daily XLP/NYSE Index
Note, the time component (somewhat of a 3 drives to a bottom but still in line w/ ‘time’ of every rally ….
Note, the 1.618 w/ an AB=CD (nice time on AB=CD) right at our .382 from the all time low
Intraday (5 minute) XLP / NYSE
Yes, we closed at the lows … but yes we ‘really didn’t’ break the lows so in order for this market to pivot and correct next week believe this level needs to hold and rally tomorrow morning.
Conclusion: believe this ratio remains important for the overall health of the market and if it can hold these lows then volatility should uptick and the market sells off. IF we breakdown from these levels THEN we’ll seek the next lower target and the market will continue top march up a wall of worry.