Remember that narratives will be constructed every day in financial media based on emotions. The problem with this strategy is that they have already happened! It has already shown up on the chart. So today, we are going to look at one of the most important intermarket relationships. That is Consumer Discretionary vs Consumer Staples, or XLY/XLP. Let’s hop onto the chart.
So what are we seeing here? Well the first thing that should catch your eye is the all time high. We love all time highs! They are bullish. When XLY is outperforming XLP on a relative basis, this is a “risk on” environment. The other thing we see is the overall bullish trend of higher highs and higher lows.
Then we see the bearish divergence. Some people tend to think that a bearish divergence will cause a trend change, but when the overall trend is bullish, we have to remember that these usually just produce pullbacks and then the trend continues. So while this chart is bullish, we can wait and watch while the higher low forms. When the higher low forms, that is confirmation the "risk on" environment is alive and well.
Keep this relationship in you back pocket. It is a great one to help you navigate the narratives of “the consumer is in bad shape”. If XLY is outperforming, the market is telling you otherwise. We would rather listen to the market than someone on CNBC.
Happy Trading!
So what are we seeing here? Well the first thing that should catch your eye is the all time high. We love all time highs! They are bullish. When XLY is outperforming XLP on a relative basis, this is a “risk on” environment. The other thing we see is the overall bullish trend of higher highs and higher lows.
Then we see the bearish divergence. Some people tend to think that a bearish divergence will cause a trend change, but when the overall trend is bullish, we have to remember that these usually just produce pullbacks and then the trend continues. So while this chart is bullish, we can wait and watch while the higher low forms. When the higher low forms, that is confirmation the "risk on" environment is alive and well.
Keep this relationship in you back pocket. It is a great one to help you navigate the narratives of “the consumer is in bad shape”. If XLY is outperforming, the market is telling you otherwise. We would rather listen to the market than someone on CNBC.
Happy Trading!