Stocks: Despite rally, investors remain defensive!

SP:SPX   S&P 500 Index
811 14 14
Despite the major rally last week, Cyclical stocks ( XLY             ) was less involved in this rally in favor to more defensive stocks ( XLP             )..

Explanation: XLY             is an ETF that tracks the consumer discretionary sector, which is an offensive sector that takes the lead in risk-on, growth-on environment, usually leads in early stages of of economic expansion environment and following crisis. which was the case since 2009. and lags in late stages of bull market and economic cycle .
XLP             tracks the consumer staples             sector, which is more defensive as it consist of large companies selling products that is widely essential to consumers, and thus has a more stable revenue stream, therefore it tends to outperform XLY             in late stages of economic cycles and early stages of economic contraction and under risk aversion.

The ratio is has started decline, favoring the staples             sector, the latest two market crashes of 2000 and 2008 was preceded by this behavior, however, it wasn't that fast or direct every time, as the ratio started to lag the SPX             for more than 2 years before 2008 market drop.

Note that XLY             has started to lag XLP             since February
I teach my experience conclusions in 10+ trading strategies. PM me for details and cost.
I truly believe this is coming down... The only thing I am stuck on is time... RSI, MACD, and STOCH Divergence has been insane but consistent up until about this past week and now divergence has really accelerated on 4H. Yesterday it looked like a nice head and shoulders formed but it didn't break through the neckline which could be construed as bullish.... Still, price can't seem to break higher and the trend is the softest its been since the last dip... Also, first dip below 50day sma on 4h chart for the entire length of uptrend. Also, 1st time it has really broken below the 25dsma... The technicals are a good setup for a crash to happen soon I believe but the uptrend has been a beast and it seems that the algos are at play and these levels could hold for sometime... I don't see it getting much higher than 2100 short term before we see some sort of a correction... Just wondering how much longer you think it's likely it will hold these levels before some sort of a correction in your opinion? I really appreciate and value all your insight and all the contributions you make to this site.
Technician RobTaylorForex
I think you have made lots of analysis and looking at charts in an educated way. I have he same bias that you have, and I also havent seen a confirmation bearish signal yet, I prefer not to call a short on such a strong uptrend unless i see a confirmation signals to increase the chances of success, which i advice everyone to do that. We have to be patient, and go with the trend until we see it reverse. Good Luck
+1 Reply
RobTaylorForex Technician
Good advice. Thank you very much for the reply! What sort of signal (or signals) would you need to see personally for confirmation? Anything in particular, or just some more bearish hints like a break and hold of most recent support/MA?
Technician RobTaylorForex
No specific one, some examples could be a major pin bar with a spike in volume. or a short term support break retest and failure. Its not always clear, sometimes i miss trades because no clear confirmation for me.
gunne821 Technician
Seems to me like many people are still hoping for a year end rally. People don't get out of the markets, they just shift sectors. You could easily see that today...Transports down, small caps down, just buy some utilities...This is why the markets aren't going anywhere, I believe. Dangerous times, if you ask me. 3th world economy (Japan) back in recession and the markets aren't bothered at all? Kinda weird, isn't it?
I totally agree, the internals of the markets is changing, there are soo many warning signals that any reasonable market participant should care about, Look at the high yield bonds for example , which is clearly under-performing, and all that hints a shift in the dynamic of market and sentiment among traders.
gunne821 Technician
I saw a webinar about Gann theory projecting 2400 today. It's at around 08.00.

Maybe you guys are interested in something like that.

My guts tell me we will see a sell-off before that, but i have to admit I am dazzled about the strength of the bull.
Good explanation. Do you think to sell sp500 at current price is a good idea??
@Cfsqbwn. This is not something that would be determined from Technician's analysis. The market may as well make new highs here while XLY/XLP ratio may continue to decline in a corrective fashion. Should the history repeat from 2000 and 2008, S&P (along with other indices) may indeed head for new lows and follow the XLY/XLP but we may be talking of a really long time frame here, weeks to months. Unless you're intending to trade on those higher time frames, the clues provided by XLY/XLP are not sufficient to make a buy/sell judgement call.
+3 Reply
2use Pink Grasshopper
In other words - this ratio is good to confirm a clear bull cycle with no foreseeable top yet. As it did until now. So as it switched to bear mode in this ratio, you can expect a top at any time. i.e. game just added risk
+1 Reply
EN English
EN English (UK)
EN English (IN)
DE Deutsch
FR Français
ES Español
IT Italiano
PL Polski
SV Svenska
TR Türkçe
RU Русский
PT Português
ID Bahasa Indonesia
MS Bahasa Melayu
TH ภาษาไทย
VI Tiếng Việt
JA 日本語
KO 한국어
ZH 简体中文
ZH 繁體中文
AR العربية
Home Stock Screener Forex Signal Finder Cryptocurrency Signal Finder Economic Calendar How It Works Chart Features House Rules Moderators Website & Broker Solutions Widgets Stock Charting Library Feature Request Blog & News FAQ Help & Wiki Twitter
Profile Profile Settings Account and Billing My Support Tickets Contact Support Ideas Published Followers Following Private Messages Chat Sign Out